Most Popular Insights for Spring 2023

Each calendar quarter, I post approximately 12 articles on my blog. This quarterly digest provides links to the most popular posts during the past three months so that you can catch up on what you missed or re-read them.

The SECURE Act 2.0: The Most Impactful Provisions #9 — Roth Treatment for Catch-up Contributions for Higher Compensated

Prior to the SECURE Act 2.0 all older participants, regardless of compensation level, could deduct their catch-up contributions. However, under the new law — beginning in 2024 — participants who earn more than $145,000 will only be able to make Roth catch-up contributions. As a result, those catch-up contributions will be taxable to those participants, but the contributions will not be taxable when withdrawn, and if held for the qualifying period, the earnings will not be taxable either.

The Secure Act 2.0: The Most Impactful Provisions #10 — Moving 529 Assets to a Roth IRA

Prior to the SECURE Act 2.0, if a 529 plan beneficiary did not use all of the funds for qualified education expenses (for example, the beneficiary graduated without using all of the funds in the 529), the options for withdrawal were not particular attractive. However, under the new law, those “excess” funds can be transferred to a Roth IRA for the 529 beneficiary, subject to certain limitations. As a result, contributions can now be made to 529 plans with the knowledge that, if not all of the funds are used for education of the beneficiary, the excess funds can be transferred to a Roth IRA for that beneficiary (and the other options, such as transferring the money to a 529 for a different beneficiary remain available).

The Secure Act 2.0: The Most Impactful Provisions #13 — Starter 401(k) Plans and Safe Harbor 403(b) Plans

Most employees who work for large and mid-sized employers have the opportunity to defer money from their paychecks into a savings-based retirement plan. That is not the case with many small employers, though, where large numbers of employees for firms that do not offer plans. However, savings-based plans are critical for employees to obtain financial security in retirement. There are studies that show that employees who can defer into retirement plans will save much more for retirement than those who do not have access to plans. Based on surveys, small employers do not offer plans because they are worried about the cost and administrative complexity of setting up and operating plans. To allay that concern, Congress created, in SECURE 2.0, a new type of plan that is simple and low cost.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.