What are the 401k benefits of the new Secure Act 2.0 law in 2023?

The Secure Act 2.0 was signed into law in late December 2022 and makes changes to 401k plans intended to encourage savings.

Changes related to 401k ROTH accounts include: 

1. Requiring catch-up contributions made by high-paid employees be characterized as ROTH 401k contributions. 
2. Allows employers to offer employees to designate fully vested matching and nonelective contributions as ROTH 401k contributions
3. Eliminates pre-death minimum distributions for ROTH IRA accounts

These changes will increase the portion of retirement savings that are subject to immediate taxation but will provide for tax-free growth.  In addition, effective 2024, ROTH 401k plans are not subject to required minimum distributions RMDs. 

The Secure Act also:

1. Increased the RMD age requirement to 73 beginning on January 1, 2023. Eventually this age will increase to 75.
2. Provides for emergency distributions from retirement accounts up to $1,000 (1x a year) without the usual penalty. This effectively acts as a short-term loan and you have 3 years to pay it back; otherwise, you have to wait another 3 years before you take another $1,000 loan.   
3. Beginning in fiscal 2025, catch up contributions will change and be indexed to inflation.
4. In 2024, your employer can match any student loan payments to your 401k.
5. In 2024, in certain circumstances, you can rollover unused 529 accounts up to $35,000 to ROTH IRA accounts. Annual limits for the rollover. 

Many of these changes are subject to forthcoming rules to be published by the IRS but investors, families and small businesses should consider implementing favorable changes as soon as possible. 

A Fee-Only financial planner can help you optimize your 401k plan, review your investment selections and help you achieve your financial goals.  

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