Florida Banking April 2023

Legislative Leaders, Continued from page 9

Under SECURE Act 2.0, beginning in 2025, employers will be able to provide employees the option of receiving vested matching contributions in Roth accounts. Previously, matching in employer-sponsored plans were made on a pretax basis. Contributions to a Roth retirement plan under this match will be after tax, but earnings still can grow tax-free. 9. 529 Plan Changes Starting in 2024, funds in a 529 account that was opened at least 15 years before the date of distribution can be rolled into a Roth IRA account for the beneficiary without current income taxation or penalty. These rollovers may be done multiple times but are subject to an aggregate lifetime limit of $35,000. Further, each distribution cannot exceed the aggregate amount contributed (and earnings attributable thereto) before the five-year period ending on the date of the distribution. Also, the rollover is treated as a contribution towards, and thus capped by, the annual Roth IRA contribution limit. 10. Retirement Savings Lost and Found Database Within two years of the date of enactment of the SECURE Act 2.0, the Department of Labor is to establish a national database that is searchable to serve as a “lost and found” for 401(k) and pension plans. This will permit employers to locate “missing” participants as well as enable participants to more easily pinpoint where their retirement savings are located. Although the Department of Labor is instructed to work with the IRS on securing a participant’s personal information, participants are permitted to opt out of the database. Conclusion As shown in these sample provisions, the SECURE Act 2.0 makes sweeping and taxpayer-friendly changes to retirement accounts. We recommend employers and employees work closely with their tax advisors to best position themselves to navigate this new law. Mark R. Parthemer, AEP, Managing Director, is Glenmede’s national Chief Wealth Strategist and Florida Regional Director. Glenmede is an independent investment, wealth management firm, and trust company, working with high-net-worth individuals, families, family offices, foundations, endowments, and institutional clients. This article is provided solely for informational purposes and is not intended to provide financial, investment, tax, legal or other advice. The author takes sole responsibility for the views expressed herein and these views do not necessarily reflect the views of the author’s employer or any other organization, group or individual.

free. Depending on plan rules (set by the employer), contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses. Upon termination of employment, the participant can roll the funds into another Roth. If a participant becomes a highly compensated employee, the account can be retained, but no further contributions made into it. The $2,500 threshold is indexed for inflation beginning in 2025. The current Saver’s Tax Credit will be transformed in 2027 to a Saver’s Match. These changes apply to lower-income-earning participants. Under the Tax Credit program, a credit on the participant’s tax return of up to $1,000 ($2,000 if married) is given as a match to plan contributions by 10, 20 or 50 percent of the first $2,000 in contributions, with the percentage dependent on income and filing status. It is phased out based on adjusted gross income (AGI). In 2023, for example, it is only eligible for a married couple whose AGI is less than $73,000. Under the Saver’s Match, instead of a credit on the return, the federal government will make a contribution of the qualifying payments into the participant’s retirement plan (other than a Roth). An exception is if the match is less than $100, it will be issued as a tax credit. 7. Withdrawals Typically, one pays a 10 percent penalty tax on a withdrawal from a tax-preferred retirement account before age 59½, unless meeting an exemption. The new act adds an exemption effective in 2024 "for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses" allowing withdraws up to $1,000 penalty free. Only one distribution can be made every three years, or one per year if the distribution is repaid within three years. However, if the funds are not repaid within three years, penalties will be applied on withdrawals for another emergency for the same reasons. Penalty-free withdrawals are also allowed for individuals who need the funds in cases of domestic abuse. These are limited to the lesser of $10,000 or 50 percent of the present value of the vested benefit. Also, penalty-free withdrawals may be made in the case of a participant’s terminal illness. Generally, under the tax code, someone is terminally ill if they have a life expectancy of 24 months or less; however, for this withdrawal exception, the expectancy is expanded to 84 months or less. 8. Roth matching permitted Unlike Roth IRAs, RMDs from an employer sponsored plan are required until tax year 2024. Further, any employer match of contributions to an employer-sponsored Roth 401(k) goes to a regular 401(k), and thus is subject to RMD rules.

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