SECURE 2.0 Update

The 2022 SECURE 2.0

Retirement savings law has over 90 provisions to encourage more people to save for retirement in workplace plans and IRAs, to help grow retirement savings and to urge small employers to offer retirement plans. Some of the provisions kicked in this year. Others start in 2024, 2025, 2026 and 2027.

Let’s look at several key changes that will first take effect in 2024:

Funds in 529 education accounts can be rolled over tax-free to a Roth IRA. There is a $35,000 lifetime cap. Rollover amounts can’t exceed the annual payin limit for Roth IRAs. And the 529 account must have been open for more than 15 years.

Roth 401(k) owners no longer need to take required minimum distributions. This conforms to the rule that already applies to Roth IRA account owners.

Plan sponsors can create emergency savings accounts for participants, who could then make Roth payins (on an after-tax basis) to that savings account within the plan. A participant’s account balance can’t exceed $2,500.

401(k) catch-up contributions by some folks over age 50 get Roth treatment. There’s an exception for workers whose annual compensation is $145,000 or less.

More penalty-free early withdrawals. Domestic abuse victims under 59½ can take up to $10,000 from their IRAs or 401(k)s without paying the 10% penalty tax. Up to $1,000 can be withdrawn penalty-free from IRAs or 401(k)s for emergencies.

Plus these: The employer contribution limits for SIMPLEs increase. Employers with no existing retirement plans can offer starter 401(k) accounts with default automatic enrollment (with a payin cap the same as that for IRAs). And the $1,000 IRA catch-up for people 50 and older will be adjusted for inflation.

An imprisoned man isn’t liable for tax on retirement payouts taken by his wife.

While the man was incarcerated, he signed a power of attorney to let his then-wife withdraw money from his retirement accounts, including his IRA and pension. She withdrew over $200,000 in 2014 and used the funds to move out of state, renovate a house to be used by her and her mother, and to pay living expenses. She also filed for divorce that year. The husband claimed he’s an innocent spouse and shouldn’t be responsible for the income tax on the retirement distributions since he didn’t get any economic benefit. He asserts she breached her fiduciary duty under the POA, and the Tax Court agreed with him (Balint, TC Memo. 2023-118).

Review your retirement plan beneficiaries if you haven’t done so recently.

You can help avoid unintended consequences by updating beneficiary designations of your 401(k) or 403(b) plans, annuities, pensions and IRAs to account for life changes such as marriage, divorce or the death of a spouse or other listed beneficiary. While you’re at it, review the beneficiaries listed in your will and taxable accounts.