Secure Act 2.0

[haapai]

Dec 23, 2022 6:12:32 GMT -5 minnesotapaintlady said:

Dec 23, 2022 1:16:00 GMT -5 teen persuasion said:

I'm intrigued by the Saver's Match replacing the Saver's credit. No more useless nonrefundable credit, instead it gets deposited IN your retirement account.

But not starting until 2027!

Yeah, 2027!  What the heck?  It can't possibly take that long to get set up?  Might not do me much good since I tentatively plan on retiring in 2028.  If my youngest goes to college the EIC and Saver's Match might be enough to convince me to stay on part time for a while longer.

Dang, I never would have gotten this news if I hadn't been here. 

It's gonna take me a while to figure out how this might benefit me.  It will also take me a while to figure out how what I used to call the "poor person's match" has just been corrupted.   While I hated the non-refundable nature of the credit ten ways to Sunday, I do have to note that the only times that I got close to qualifying for a 50% (non-refundable) credit were when I either wildly over-withheld in the prior year or was gifted money from my family that I pushed into a traditional IRA or 401(k). 

The existence of the multi-named credit helped me save, but I have to admit that a lot of what I saved came from others. 

[Tiny]

Doesn't the current change mean it would effect tax year 2026. So, catchup contributions in made in 2026 would would need to be made to a Roth?

IV. ADMINISTRATIVE TRANSITION PERIOD
Under section 603(c) of the SECURE 2.0 Act, the provisions of section 603 apply
to taxable years beginning after December 31, 2023. However, the first two taxable
years beginning after December 31, 2023, will be regarded as an administrative
transition period with respect to the requirement under section 414(v)(7)(A) of the Code
that catch-up contributions made on behalf of certain eligible participants be designated
as Roth contributions. Specifically,
until taxable years beginning after December 31,2025,
(1) those catch-up contributions will be treated as satisfying the requirements of
section 414(v)(7)(A), even if the contributions are not designated as Roth contributions,
and (2) a plan that does not provide for designated Roth contributions will be treated as
satisfying the requirements of section 414(v)(7)(B).

[minnesotapaintlady]

Aug 27, 2023 10:04:47 GMT -5 Tiny said:

Doesn't the current change mean it would effect tax year 2026. So, catchup contributions in made in 2026 would would need to be made to a Roth?

IV. ADMINISTRATIVE TRANSITION PERIOD
Under section 603(c) of the SECURE 2.0 Act, the provisions of section 603 apply
to taxable years beginning after December 31, 2023. However, the first two taxable
years beginning after December 31, 2023, will be regarded as an administrative
transition period with respect to the requirement under section 414(v)(7)(A) of the Code
that catch-up contributions made on behalf of certain eligible participants be designated
as Roth contributions. Specifically,
until taxable years beginning after December 31,2025,
(1) those catch-up contributions will be treated as satisfying the requirements of
section 414(v)(7)(A), even if the contributions are not designated as Roth contributions,
and (2) a plan that does not provide for designated Roth contributions will be treated as
satisfying the requirements of section 414(v)(7)(B).

Yep.  I had to go back and make sure that's what I posted, and it is.  2026. 

If the previous post is what you're referring to, they're talking about the Saver's Credit in 2027, not the Roth Catch-up.

[tskeeter]

Apr 17, 2022 10:25:48 GMT -5 The Walk of the Penguin Mich said:

Apr 16, 2022 23:18:21 GMT -5 Rukh O'Rorke said:

I think we need an elaboration on "everyone", because no one here seems to have encountered that advice at all. Seems it might be very dependent on balances and AA.

I have heard this too on a lot of retirement boards.  The thought is to let these investments grow even larger.  However, it makes some assumptions that may or may not be true, so this really is not a ‘one size fits all’ strategy.  I don’t think there is one.

I think the logic in using after tax funds for retirement living expenses before using pre-tax funds is to maximize the stepped up basis benefit for your heirs.

Not sure what all of the current rules are around inherited Roth’s, inherited IRA’s, inherited 401K’s, etc.  The conventional wisdom may not be appropriate under today’s tax and estate laws.

[bean29]

Our plan already allows Roth contributions, does that mean my 2024 catch up contributions will have to go to Roth?

[souldoubt]

Here's my understanding of what was going to be implemented 1/1/24 that's pushed back to 1/1/26:

1. The roth catch-up contribution requirement would impact individuals who make $145K or more the prior year.   

2. It's on the plan administrator to track and it only applies to individuals employed with the Company the prior year, i.e. if you make $145K+ and switch jobs it doesn't apply that first year with the new employer.

We were in contact with our 401K rep, 401K auditor and payroll provider and the consensus was it's a cluster****.  It's a good example of something passed by our elected officials who have no idea what actually has to go into implementing such a change or requirement. 

[minnesotapaintlady]

Aug 27, 2023 18:27:26 GMT -5 bean29 said:

Our plan already allows Roth contributions, does that mean my 2024 catch up contributions will have to go to Roth?

No. It's been pushed back to 2026 for everyone. It also only applies if you make more than 145K.

[teen persuasion]

Aug 27, 2023 13:16:19 GMT -5 tskeeter said:

Apr 17, 2022 10:25:48 GMT -5 The Walk of the Penguin Mich said:

I have heard this too on a lot of retirement boards.  The thought is to let these investments grow even larger.  However, it makes some assumptions that may or may not be true, so this really is not a ‘one size fits all’ strategy.  I don’t think there is one.

I think the logic in using after tax funds for retirement living expenses before using pre-tax funds is to maximize the stepped up basis benefit for your heirs.

Not sure what all of the current rules are around inherited Roth’s, inherited IRA’s, inherited 401K’s, etc.  The conventional wisdom may not be appropriate under today’s tax and estate laws.

That sounds backwards. If you want to maximize the stepped up basis for your heirs, you'd never touch your taxable account and spend down your pre-tax IRAs/401ks.

I think people used to spend down taxable prior to RMD age, because LTCG rates are lower than rates on OI (IRA withdrawals) and your return of basis is not taxed, plus people wanted to pass on a big IRA so heirs could do a stretch IRA. Now the stretch IRA is dead -- heirs have to drain inherited IRAs in 10 years. And drawing from taxable while letting IRAs grow may give you a few years of (relatively) low taxes, until RMDs create a tax bomb (especially with SS taxation and IRMAA).

The best plan seems to be to try to aim for level taxes throughout retirement, through judicious mixing of sources: some IRA withdrawals or conversions, some taxable, some Roth to cover lumpy expenses as needed without driving taxes up. Proportions vary as you add SS, pensions, RMDs, etc.

[Rukh O'Rorke]

Aug 27, 2023 22:51:26 GMT -5 teen persuasion said:

Aug 27, 2023 13:16:19 GMT -5 tskeeter said:

I think the logic in using after tax funds for retirement living expenses before using pre-tax funds is to maximize the stepped up basis benefit for your heirs.

Not sure what all of the current rules are around inherited Roth’s, inherited IRA’s, inherited 401K’s, etc.  The conventional wisdom may not be appropriate under today’s tax and estate laws.

That sounds backwards. If you want to maximize the stepped up basis for your heirs, you'd never touch your taxable account and spend down your pre-tax IRAs/401ks.

I think people used to spend down taxable prior to RMD age, because LTCG rates are lower than rates on OI (IRA withdrawals) and your return of basis is not taxed, plus people wanted to pass on a big IRA so heirs could do a stretch IRA. Now the stretch IRA is dead -- heirs have to drain inherited IRAs in 10 years. And drawing from taxable while letting IRAs grow may give you a few years of (relatively) low taxes, until RMDs create a tax bomb (especially with SS taxation and IRMAA).

The best plan seems to be to try to aim for level taxes throughout retirement, through judicious mixing of sources: some IRA withdrawals or conversions, some taxable, some Roth to cover lumpy expenses as needed without driving taxes up. Proportions vary as you add SS, pensions, RMDs, etc.

 wish I'd had a bit more of this vision earlier on.....but even if I had the vision, likely couldn't have executed it. the 'locking' function of 401ks/rollovers and roths is likely the only thing that saved me from raiding the piggy during emergencies....and there were, a lot of those......