The SECURE 2.0 Act was passed at the end of 2022, but a lot of its provisions still haven't gone into effect. That changes in a few weeks, though, when five huge retirement rule changes become law. Below, we'll take a closer look at what they are and how they could affect you.
1. Student loan payments qualify for 401(k) matches
Under the new law, employers will have the option to make matching contributions to employees' 401(k)s if that employee makes qualifying student loan payments during the year. A qualifying payment is defined as any indebtedness the employee incurred solely to pay higher education expenses. Employers are not required to offer this perk, but it could be a useful tool to help companies attract top talent while allowing cash-strapped employees to save for their futures.
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2. Penalty-free withdrawals for emergencies
Beginning in 2024, there will be a new exception to the 10% early withdrawal penalty for taking money out of your tax-deferred retirement accounts before you're 59 1/2. You may withdraw up to $1,000 to cover unforeseen or immediate financial needs.
You may only make one emergency withdrawal per calendar year, and there's a three-year window in which you can pay back that distribution. You don't have to, but if you don't, you won't be able to take another emergency withdrawal until the three years are up.
3. 529-to-Roth IRA rollovers
Families will soon be able to roll over excess 529 plan funds to a Roth IRA in the beneficiary's name, but they must adhere to the following rules:
- There's a lifetime maximum rollover amount of $35,000.
- You cannot roll over more than the lesser of the Roth IRA's annual contribution limit or the beneficiary's taxable income during any given year.
- The 529 plan must be open for at least 15 years before rolling any money over to a Roth IRA.
- You cannot roll over funds contributed to the 529 plan within the past five years.
4. Penalty-free withdrawals for domestic abuse survivors
Domestic abuse survivors may withdraw up to the lesser of $10,000, indexed for inflation, or 50% of their retirement account balance to help them escape their unsafe situation. These withdrawals are not subject to the 10% early withdrawal penalty. Like the new penalty-free emergency withdrawals, participants will have up to three years to repay their domestic abuse withdrawal if they choose. The IRS will refund the income taxes paid on this withdrawal to those who repay the funds.
5. No RMDs for Roth 401(k)s
Current law exempts Roth IRAs from required minimum distributions (RMDs) -- mandatory annual withdrawals everyone must make from their retirement accounts beginning in the year they turn 73. But Roth 401(k) holders still have to take RMDs from these accounts each year. This will change in 2024, when Roth 401(k)s will receive the same RMD treatment as Roth IRAs.
These rules may not all apply to you right now, but they're worth keeping in mind as they could affect you later. And if any of the above changes are significant to you, take time to rethink your retirement savings or withdrawal plans for next year. Having a strategy in mind can help you get the greatest value out of your retirement account funds.
