By Matthew Gaude & Shawn McGuire
There are plenty of changes coming with the gradual implementation of the SECURE 2.0 Act which could enable you to save more toward your retirement. Some recent announcements have revealed additional planning opportunities for high-earning individuals and those with 529 plans.
SECURE 2.0 Act Delay
A recent announcement from the IRS delayed the implementation of Section 603 of the SECURE 2.0 Act, which would have prevented those aged 50 and over from making catch-up pre-tax contributions to their 401(k) plans.
Originally, the change was scheduled to go into effect on January 1st, 2024, but instead, the IRS decided to delay this section of the SECURE Act until 2026. The extension to 2026 followed raised concerns regarding the reconfiguration of administrative and compliance requirements involved in payroll systems that would be necessary to implement the new rules.
First, remember, SECURE Act 2.0 wasn’t passed until December 29, 2022. And this provision, which obviously impacts a lot of plans and a lot of participants, was set to start being implemented in just a few months. Plans need to educate employees about the change, provide paperwork that may need to be completed, implement the changes and coordinate with the plan’s administrator. The implementation would be very difficult to accomplish in 2023.
Plan sponsors will have two extra years to implement the new regulation. So, what does this mean? Well, it means next year your high-wage-earning clients will still have the choice of making either pre-tax or Roth IRA catch-up contributions. They won’t be forced into making catch-up contributions to the Roth 401(k).
This allows people aged 50 and over making $145,000 per year or more to continue making pre-tax catch-up contributions until January 1, 2026. Even if you make less than $145,000, you’ll still be able to make catch-up contributions to your 401(k) plan. Regardless of your wages, this administrative delay means you can add more to your retirement savings plan over the next two years, which could help you build a more comfortable retirement.
Several other key facets of the regulation were pending further commentary and review by the IRS. For instance, one of the things the IRS said was that they intend to issue guidance saying that only wages subject to FICA count for this purpose.
This means that while high-earning wage-earners will be unable to make catch-up contributions to a pre-tax account like a 401(k), high-earning self-employed individuals, high-earning partners in partnerships, and even high-earning individuals who work for state and local governments where Social Security taxes are not taken out of their wages, will still be eligible indefinitely to continue to decide whether to make their 401(k), 403(b), or similar catch-up contributions to either the pre-tax or Roth 401(k).
And, finally, it does in fact look like if an individual has more than one employer, wages among the two employers will not be aggregated together for this purpose. For instance, if an individual worked for two companies and earned $100,000 at each of them, even though they have more than $145,000 of wages because neither employer paid them more than $145,000 wages, this prohibition on making pre-tax catch-up contributions would not apply to them.
529 to Roth Opportunity
Although one part of the SECURE 2.0 Act is delayed, there’s another opportunity to take advantage of through this new legislation. In 2024, you can transfer money directly from a 529 plan that is at least 15 years old to a Roth IRA.
This was designed primarily for people with earned income who wouldn’t typically be able to hit the annual limit on their Roth IRA contributions, so it might be of minimal benefit to those with higher income. There are several complex rules and stipulations around this type of transfer that make it essential to involve a financial advisor.
- The beneficiary on the 529 plan and the owner of the Roth IRA have to be the same.
- The 529 account must be open for at least 15 years.
- No portion of the funds that have been deposited to the 529 within the last five years (including the earnings) can be transferred.
- There’s a lifetime limit on these types of transfers of $35,000.
- This type of transfer still counts toward your IRA contribution limits for the year.
If you meet the qualifications for a 529 to Roth IRA transfer, it could help jump-start your child/grandchild’s retirement.
Maximize Your Opportunities With a Financial Advisor
When you’re planning for retirement, you don’t want to leave additional money or opportunities on the table. But who has time to stay on top of annual contribution limit changes, IRS rules, and legislation that could impact your retirement savings? Live Oak Wealth Management does.
As your trusted financial advisors, we stay informed on all the latest market developments, rule changes, and more to keep your money optimized for growth. If you don’t want to miss out on opportunities to improve your retirement plan, call our office at 770-552-5968 or email [email protected]. Or, if you prefer, you can simply click here to schedule an appointment online. We’d be happy to help you build a retirement you can look forward to.
Matthew Gaude is an *investment advisor representative and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. Working first as a commodity broker and then as a Business Development Manager for a national broker-dealer in previous jobs, he has the insight and experience to help clients understand the complexities of the market and implement strategies to minimize risk. To learn more about Matthew, connect with him on LinkedIn or visit www.liveoakwm.com.
Shawn McGuire is a financial advisor and the co-founder of Live Oak Wealth Management, a financial services firm in Roswell, Georgia. He serves the planning and investment needs of corporate employees, those approaching or in retirement, and 401(k) plan sponsors. He has worked in financial services since 2002 in positions ranging from financial advisor to stock broker and portfolio manager. As a CERTIFIED FINANCIAL PLANNER™ professional, he is trained to help clients with virtually all their financial needs. To learn more about Shawn, connect with him on LinkedIn or visit www.liveoakwm.com.
Securities offered through American Portfolios Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through *American Portfolio Advisors, Inc., a SEC Registered Investment Advisor. Live Oak Wealth Management, LLC is independently owned and not affiliated with APFS or APA.
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