In today’s vlog, I will be discussing the SECURE Act 2.0: Expanded Roth Contributions. This is our third vlog about the changes within the SECURE Act 2.0 which became a law in December 2022. If you are curious about the changes regarding Required Minimum Distribution (RMD) and 529 plan rollover to Roth IRA you can check them out on our website. For this vlog, I will focus on the change of “Expanded Roth Contributions”.
Before this SECURE Act 2.0 is passed, you did not have an option of putting employer matching contributions or non-elective contributions to Roth. All of it are required to put in Traditional which means it is a pre-tax contribution. Also, for those who have SIMPLE IRA and/or SEP IRA, they are not allowed to do Roth contributions.
After the SECURE Act 2.0 is passed, employers are now permitted to offer this option to their employees. It would allow employees to put the employer matching contributions and nonelective contributions into Roth instead of Traditional. Please note that employer contributions to Roth will be included in the employee’s gross income for the year. Also, for those who have SIMPLE IRA and/or SEP IRA, they are now allowed to do Roth contributions.
However, it is completely up to employers and administrators to decide if they want to add this feature because they are not required to do it. If they do, it will take some time for employers and administrators to adjust and offer this feature. They would need to set up a process to handle employees’ elections and reporting any Roth contributions as taxable income. They would notify their employees when this option is available.
If your employer decides to offer this option to their employees, you would have to consider different factors such as taxable income and tax rates before making your decision on whether to take advantage of this option. The choice of contributing to Traditional or Roth will impact your retirement planning a lot. If this change could impact your situation, you can contact our advisors to discuss how to utilize this option as part of your retirement planning.
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