The SECURE Act 2.0, enacted in late 2022, changed more than 90 rules about IRAs and other qualified retirement plans. The changes are phased in over several years.
Here are some key changes that take effect in 2024 or took effect in 2023.
For the first time, excess funds in a 529 education savings plan can be rolled over to a Roth IRA. There are limits to this rollover, as this article explains, but it can be useful for those who find that all the money in a 529 account isn’t likely to be used for education as originally intended.
Required minimum distributions (RMD) no longer apply to owners of Roth 401(k) accounts. The RMDs had been a major difference between Roth 401(k)s and Roth IRAs, and the RMD rule discouraged some people from using Roth 401(k)s.
Higher-income employees (those earning more than $145,000) who are ages 50 and older will have any catch-up contributions they make to 401(k) plans treated as Roth-type contributions. That rule applies whether the contributions are to a traditional 401(k) or Roth 401(k). The catch-up contributions will be included in gross income and subject to income and payroll taxes.
The catch-up contribution limit for IRAs, available to those ages 50 and older, will be indexed for inflation. The limit has been fixed at $1,000 for some time.
More types of distributions can be taken penalty-free before age 59½. The new penalty-free early distributions that take effect in 2024 are for domestic-abuse victims and for “emergencies” as defined in the tax code and any guidance the IRS issues.
Employers also can add more provisions to retirement plans. They can allow employees to create and fund emergency savings accounts through the employer plans.
Employers also can offer simple, low-cost starter 401(k)s. This provision is intended to encourage employers who don’t offer retirement plans to initiate them. A provision with the same goals gives employers a tax credit for all or part of the cost of establishing a new retirement plan for employees.
Finally, the employer contribution limit for SIMPLE plans increases to $16,000, and those 50 and older can contribute another $3,500 as a catch-up contribution.