There’s some good news coming out of Washington last week and that’s Secure 2.0. This new bill is full of new benefits and options for IRA and 401k investors. The bill passed the House 414 to 5. That’s right 414 in favor and only 5 opposed. The bill has prohibited transaction fixes for self-directed IRA investors, RMD age extensions, and more Roth account options.
Rothification
There are three new areas where Congress is allowing Roth accounts.
First, Roth SEP IRAs. Right now SEP IRA contributions are traditional but under the new bill, you’ll be able to make Roth SEP IRA contributions. In a SEP IRA, you could be saving $61K a year as Roth dollars. That’s way better than $6K in a regular Roth IRA.
Second, Roth SIMPLE IRAs. Under current rules, SIMPLE IRAs can only be traditional, but under the new rules, SIMPLE IRA contributions can be Roth. SIMPLE IRAs have been popular plans for small businesses with employees, but we’ve always had one big negative that steered clients away and that was that they could only be traditional. Now they can be Roth. You can contribute up to $14K annually to a SIMPLE IRA, and under the new bill, those dollars can be Roth.
Third, employer 401k matching contributions can now be Roth. Under current law, only employee contributions can be Roth and the employer must be traditional. The new bill allows 401(k), including solo 401 K, employer contributions to be Roth.
Bottom line, this bill opens more Roth options for IRA and 401k investors. And that’s a good thing because Roth accounts can be powerful for investors who want tax-free growth and distributions at retirement.
RMD Age Extended
Required minimum distributions age (RMD) is being extended from 72 to 73 starting in 2023 and eventually going to age 75 in 2033. RMDs apply to traditional IRA and traditional and Roth 401(k)s. Bottom line here, investors will have more time to keep their funds invested before RMD age hits. That’s also good news.
Death Penalty for IRA Prohibited Transactions Fixed
There is a death penalty of sorts to IRAs when you engage in a prohibited transaction and this is something I’ve been working hard to change. Under current law, if you have a $100K IRA account and you engage in a $10K prohibited transaction, your whole $100K IRA is penalized and distributed for that mistake. Under the new bill though, only the $10K involved in the IRA prohibited transaction would be distributed. Penalizing only the amount involved is how prohibited transactions for 401ks and employer plans work – and that’s how it should work for IRAs. Under the new bill, only the amount involved in an IRA prohibited transactions is distributed.
Please let your senators know your support for this bill and these provisions which help IRA and 401k investors secure their own retirement. This passed the House with overwhelming support and the Senate has a bi-partisan similar bill being sponsored. Please contact your U.S. Senator to let them know you support the House Secure 2.0 retirement bill and these provisions outlined above.
