Huge Change to IRA’S and 401K’S – New Laws in Effect

Did the Grinch or Santa Claus come to town?

Biden signs the new bill…

What does this mean for small business owners??

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Visit my website to read the full article – Huge Changes to IRAs and 401(k)s in New Budget Law that Effects Everyone

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Mat Sorensen
A new law signed today by President Biden is going to affect how you can save in your IRA or 401k. This was known as secure 2.0. He got snuck in as part of the omnibus bill that was just made effective today. Now, the changes are drastic, there are so many changes here. But the good news is most of them benefit people saving in their IRA or 401k, someone outlined the Greatest Hits, in my opinion, that’s going to affect you as an individual with your IRA or 401k. Now, these are awesome.

Many of them. I’ve been waiting for years, I’ve helped work on some of these myself, particularly. So let’s hit him first. Sep and SIMPLE IRAs can now be Roth. Traditionally simple and SEP IRAs had to be traditional dollars, meaning they were tax-deductible, they grew and came out, and you pay tax on the way out. But now under the new bill that just went into effect, you can have a simple Roth IRA, you can have a SEP Roth IRA, and under this provision, you don’t get a tax deduction when you put them in. But like Roth funds, it’s going to grow and come out tax-free. That is huge. Frankly, it’s one of the reasons I never liked SIMPLE IRAs is good, you’ll have the option of being a traditional SIMPLE IRA is going to be a great option for small businesses. Now, something I’m even considering offering here at Direct IRA. Now, a simple Roth IRA is going to be an awesome option. And of course, SEP IRA has been around for a long time for self-employed people but got a knock for me because you couldn’t do Roth.

Well, they fix that now you can do Roth accounts. And this is a huge part of the bill, more Roth options. Congress loves the Roth option, they want to give us more of the Roth option. Why do they love it, because it helps the budget today, they get more people to save in a Roth. That means they don’t give up tax deductions today, they don’t give up tax deductions today. That means more revenue for the government that Congress gets to spend. So whatever the politics worked out win for us and win for Congress more Roth accounts can let me hit another one that is huge for Roth accounts.

If you have a 401k, even if you solo 401k owner, when you do your employer or the match, sometimes that used to be traditional only, there was no other option, you had to do traditional dollars for the employer match. Now the employer match can be Roth, you can choose Roth, so you can always do you could always do Roth on the employee side if your plan allowed for it. But now under the new law, you can also do Roth on the employer match. That is awesome. Also allowing those that love Roth like us to do more Roth dollars. Now we can do Roth on the employee. And under this new bill, we can do Roth on the employer match on all the employer dollars, again, more Roth options, being able to grow and get that money to come out tax-free. Now, here’s another one for sticking with the Roth 401 K concept and this is a solo 401k. Owners too. This is a really cool one. No RMD on your Roth 401k RMD required minimum distribution is the age when you hit 72, which changes here in a minute. But staying with me here RMD says you have to start taking money out of your traditional IRA, your traditional 401k, and what used to be your Roth 401k. You had to take start taking money out of this and depleting the account once you hit 72.

Now Roth IRAs had no RMD there was no required minimum distribution. Congress didn’t care. Why didn’t they care because well, the money comes out of your Roth and they don’t get tax revenue revenue anyways? So what do they care? Well, there’s this little quirk in the law that said, Yeah, but Roth 401 Ks, you have to start pulling the money out, even when you hit 72. Well, that has now changed. Roth 401 K accounts are also exempt from RMD. Now starting in 2023, just like your Roth IRAs, so that’s awesome. Again, for the lovers of Roth accounts, building it up in your 401 K solo 401 K doesn’t matter, no RMD on your Roth 401 K funds. Now speaking of RMD, the RMD age used to be 70 and a half, it went up to 72, back in 2019. And now it’s going to be 73 in 2023. And then it’s gonna go up to 75 by the year 2033. So RMD age is shifting here, again, RMD is the date.

When you have to start taking money out of your account. When you hit that age, you got to start taking money out of that account. Now remember, under this new bill, this only applies to traditional IRAs, and traditional 401 K’s Roth accounts are exempt from RMD at any age, so you don’t need to worry about it if you’ve done Roth IRA or Roth 401 K. Now under this new bill, but for those you’d have traditional funds, you’re getting more time, life expectancies increasing so the government’s giving us more time before we’re forced to start taking money out and you can always take the money out if you have traditional funds, or raw funds for that matter once you have 59 and a half, but there’s no forced out we just We have started taking money out of your traditional account. Now we’re moving to 73 and 2023. And then it’s going to hit up to 75 by 2033. Okay, now back on the Roth because again, this bill has so much good Roth stuff in it, unused 529 plan funds can be rolled to Roth IRAs. That’s right, unused 529 plans can be rolled to the Roth IRA of the beneficiary, the 529 plan was set up for. So if you set up a 529 plan for your kid, they went to college, or maybe they did in the vocational school, they didn’t use the 529, or there’s a piece left over, you can actually roll that into a Roth IRA in their name. Now, there are some rules on this, you have to have had the account for 15 years. So it can’t be something like set up right now when they’re in high school and dropped right back out after college, you would have had to have this for a while or maintain it after college. And maybe they don’t end up going to school in their 20s and 30s, or more graduate education, whatever. So the 529 gets unused, well, it can be rolled to the Roth IRA. Now it’s a max of 35,000. This is a cool option that, again, is going to let more dollars get into Roth, these unused 529 plan funds are a great place because let’s face it, some people really save on the 529 plans, and then they end up with these extra funds at the end of the day. And you know, sometimes you can use the 529 for another kid or family member. And so it is portable, where you can move it around to other people. But there are instances where people just are like, well, I don’t have anywhere to use it. So they end up having to distribute it and pay taxes. Nice option now can go over to a Roth IRA. But there’s more here, okay, this is already awesome, right? There are so many great benefits here. And this new bill was like a Christmas present that just, you know, got signed into law today, two days after Christmas, but we’ll take it a little late. Here’s another one.

There’s an additional ketchup. So for 401 K plans, and this is for you solo K owners to you know, you have a $6,500 Ketchup that you can do if you’re 50 or older, where they’re increasing that for those 60 to 63. I don’t know, whatever reason, it just hit that age of 60 to 63, and you get an additional ketchup of $10,000. Now, this starts in 2025. But it’s going to give more ketchup dollars and the ability to contribute to those who are at an older age still working and contributing to their retirement account. And now this can be traditional or Roth. But actually, if you’re high income, your touch-up contributions must be Roth. This is a new thing going through the bill, if Congress is going to allow you to do ketchup contributions, meaning catches up as if you’re older, 50 or older, they’re requiring you to make them as Roth. Now, high income is about 145,000 single rules, we’re gonna get defined on this more clearly, but just know, ketchup might have to be Roth, depending on your income level. But again, no big deal Roth grows and comes out tax-free. We all love the Roth anyways. So now there are more changes in the bill that are awesome for any of you that self-direct your IRA or trying to save and maximize you’re planning to have retirement you can actually look forward to. So this bill gives, again, more Roth options, delays RMD age lets you put more Roth in a 401k if you want. There are so many great things in this.

Please check out my article on it where I’ve got more details on this. Get over to Matt sorenson.com and directed ira.com And we’ll be doing a podcast episode and much more content on the changes in this bill and how you can take advantage of them to help take control of your retirement.

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