SECURE 2.0 Act Changes to Roth Provisions in 2024

As we enter 2024, many new provisions from the SECURE 2.0 Act will be effective as of January 1. Included in those provisions are several Roth-related items that should be considered for potential savings opportunities.

Elimination of required minimum distributions (RMD)

Roth IRAs have always been exempted from mandatory RMDs, but Roth 401(k) accounts were not. Roth (401k) account owners were forced to take RMDs where applicable. The SECURE 2.0 provision for 2024 did away with this distinction, and RMDs are no longer required from Roth 401(k) accounts.

Fund transfers from 529 Plan to Roth IRA

A 529 Plan allows for tax-free earnings to be used toward educational expenses for account beneficiaries. Where funds are not used for educational purposes, a 10 percent penalty is applied to the earnings from the plan. This provision was put in place to alleviate the problems associated with “leftover” funds in a 529 plan. This is a welcome solution, but there are a number of restrictions that need to be followed to achieve the desired benefit.

• The maximum amount that can be rolled over to a Roth IRA is $35,000 per account beneficiary for life.
• The Roth IRA must be in the name of the 529 Plan beneficiary (not the account owner).
• The 529 Plan must have been open for more than 15 years (no guidance from the IRS if the 529 account was transferred to a new beneficiary).
• Rollover amounts cannot include any contributions (and earnings on those contributions) made in the preceding five years.
• Rollovers are subject to the annual Roth IRA contribution limit (i.e., $7,000 for 2024). It will thus, take several years to reach the $35,000 maximum if applicable.
• Any 529-to-Roth rollover would count toward the contribution limit in effect for that year (i.e., a $4,000 rollover would result in only a $3,000 permissible contribution for 2024).

Roth Catch-up contributions for high income earners delayed until 2026

The controversial SECURE 2.0 Act provision requiring “catch-up contributions” for high-paid employees to be made on a Roth basis was originally set to take effect on January 1, 2024 but has been delayed until January 1, 2026. Recordkeepers and brokers lobbied to delay the implementation of this provision due to a lack of guidance as well as time to update their tracking systems. This article on Notice 2023-62 details the delay and goes further into catch-up contributions.

The beginning of the year is a great time to review retirement planning items, especially with new provisions from recent legislation taking effect at the start of the year. Fill out the form on this page to connect with a retirement plan specialist from our tax practice.