No matter your age, saving for retirement is foundational to providing the security to lead a fulfilling life in retirement. Thanks to the
4 notable changes applicable to Roth retirement accounts
Roth accounts can be incredibly powerful retirement savings tools. Contributions to these accounts are made with after-tax dollars and their earnings grow tax-free. When it's time to take distributions in retirement, you don't have to worry about owing more taxes since you’ve paid them upfront. Roth accounts are a smart way to
The SECURE Act 2.0 introduced four improvements that make Roth accounts even more attractive and available to investors.
1. Roth SIMPLE & SEP IRAs available for the first time
It’s common for small business owners and their employees use
The SECURE Act 2.0 changed the rules for these plans, and businesses are now allowed to offer Roth SIMPLE and SEP IRAs going forward. Check with your employer to see if they will offer a Roth version in the near future if you participate in a SIMPLE or SEP IRA.
2. New option for Roth matching contributions
The Secure Act 2.0 allows plan sponsors (employers) to now give their employees a choice to direct their matching contributions into after-tax Roth accounts. Previously, employer matches could only go into a tax-deferred account—even when the employee's own salary deferrals were directed to their Roth accounts.
Employees will have to include any Roth matching contributions in their taxable income when they are received. However, since Roth earnings grow tax-free, this has the potential to significantly increase the amount of tax-free savings you accumulate over your career.
3. RMDs will not be required from Roth employer-sponsored retirement accounts
One of the key benefits of
This may affect how you choose to save as a younger worker and pre-retiree. Because qualified Roth distributions are tax-free, they can be especially helpful for
4. 529 plan to Roth IRA rollovers will be available
Another change related to Roth accounts is the ability to transfer
- 529 to Roth IRA transfers count against the annual contribution limit.
- The 529 must have been in place for at least 15 years.
- There is a lifetime 529 to Roth IRA rollover cap of $35,000.
- The Roth IRA owner must be the 529 beneficiary.
- Contributions made to the 529 plan in the
last five years,including the associated earnings, are ineligible for a tax-free transfer.
More exceptions added for early retirement account withdrawals
Life happens, and there may be times where you need to withdraw money from a retirement account before you've turned 59½. However, you will owe a 10% early withdrawal penalty if you don’t meet one of the IRS penalty exceptions including: first-time home purchase, disability, death, or unreimbursed medical expenses.
The SECURE Act 2.0 created additional exceptions that will be exempt from early withdrawal penalties in the following situations:
- Withdrawals by people with a terminal illness that a physician has certified is likely to result in death within seven years.
- “Hardship” withdrawals by people experiencing domestic abuse of up to 50% of their retirement account or $10,000 (whichever is smaller), starting in 2024.
- Withdrawals of up to $1,000 for immediate personal or family emergency expenses (limited to one withdrawal per year).
- Firefighters, corrections officers and other similar workers do not have a 10% penalty for distributions if they retire in the year they turn 50 or after and have at least 25 years of service with the employer.
- Beginning in 2026, it's possible to withdraw $2,500 per year without penalty for long-term care contract premiums.
Emergency savings accounts may soon be available through your employer
Beginning in 2024, retirement plan sponsors will have the option to offer a designated emergency savings account within their plan. If your employer chooses to offer this account, employees may deposit up to $2,500 into an after-tax investment account each year and withdraw up to four times per year without incurring any taxes or penalties.
Having money in a tax-advantaged short-term
Employers must auto enroll employees in retirement plans starting in 2025
Having your own retirement savings, and not just relying on government programs like Social Security, is critical for creating financial security. New
This doesn't apply to plans that are already in force but could help those who switch jobs and enroll in newly established plans. People who otherwise may not be proactive about their retirement savings will likely benefit the most.
Get guidance on your retirement savings plan
These changes and others brought on by the SECURE Act 2.0 could make a difference for your personal finances and your retirement plans.