On this episode of the Retire Once Show, Johnathan and Melissa discuss the new Secure Act 2.0. This law has over 100 different retirement provisions. There are so many changes that this law impacts and on this episode, we cover the top changes that are coming with the new Secure Act 2.0. With everything from new ages for RMD (required minimum distributions) to an increase coming to catch-up contributions, there are so many things to unpack in this 4100 page law.
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There is a new law coming that might impact your retirement accounts. Today we are talking all about the new Secure Act 2.0 and some of the major changes coming. All that and more on today's episode of The Retire Won't Show.
Everybody. I am Johnathan Rankin. I'm the founder and CEO of the and Wealth Management, and I am joined today, as always by my lovely co-host. Hi, I'm Melissa Rankin. Thank you so much for joining us. Thank you for being here. I hope everybody's having a great holiday season. I know we are getting to spend time with our lovely children as they're outta school.
That is always fun. Christmas is just a few days away. Weather's chilly here in Dallas. That's right. And uh, as I've seen people say that you right now are either sick with a cold, the flu, this rsv, or you don't have children. We have children and that's why my trooper wife here and co-host is just powering through this thing.
So thank you. Well, I apologize to everybody who is listening to this for my scratchy voice and if I happen to cough or sneeze, I apologize in advance for that also. We'll do our best to edit that out . But, uh, thank you for being here Before we jump into the Secure Act two point. What do we want people to do?
Mel, we want you to subscribe. We never want you to miss an episode of this amazing retirement journey that we wanna be on with you. That's right. Hit that subscribe button. Join us on this thing. So let's jump in. All right, so back in 2019, the original secure Act was passed, and now a few years later, there is a 1.7 trillion spending bill that is making its way through Congress and it's likely to be passed to the next day or so, or probably by the time this comes.
And this 4,100 page. has. So some light reading material, just very light reading material. I don't even think that people writing these things can actually read all of this stuff. I think it's like one person contributes the page, the next person does, and then all together, everybody still wants all of their pages in there.
I love that. That's where our taxpayers dollars are going to a 1.7 trillion spending bill that nobody's actually gonna read the whole thing of. Um, but in this bill, there are over a hundred retirement provisions known as Secure Act 2.0. , we're not gonna cover all 100 plus of these. We're gonna cover some of the major ones.
The standout ones. Yeah. And the good thing is that there's nothing in this, uh, 2.0 bill that is as major of a change as the original secure act did with the death of the stretch ira. I mean, we, uh, we've talked about it before and if you haven't seen our video on inheriting, I. Uh, make sure you check that out.
We'll link to that right here. But, uh, they made that a lot more complicated, so luckily, now there's nothing that bad in this bill. Uh, but let's jump into some of the major changes in the, uh, new secure Act 2.0. So again, we're not gonna cover all of them, just the ones that we felt were kind of standout ones, if you will.
So to kick it off, number one, an increase in ketchup contributions in 401K or 4 0 3 B. That's right. If you are over the age of 50 right now, you can contribute an additional $6,500 into your 401k or 4 0 3 and next year it's going to go up to $7,500. Uh, but with the proposed changes, this allows people ages 60, 61, 62 and 63 to increase that ketchup contribution to $10,000 a year in addition to their traditional, regular contributions.
So, , why they picked those ages. I don't know why. Is it only those few years? I don't know. But those are the years that they're letting people contribute a little bit more than regular, so, so if you're 60, 61, 62 or 63, that applies to you. That applies to you. If you're 64, you should have done it when you were 63.
I guess if. If you could travel back in time before this That's right. Was proposed, I guess. Yeah. So no one explained to us why they've picked those ages, but those are the ages that you get. So, um, so leading with that is number two, ketchup, contribution limits indexed for inflation. Right now the ketchup contribution for IRAs has been a thousand dollars since 2006.
Now forever. It seems like forever. Yeah, and I'm pretty sure the only thing that stayed, you know, the same price since 2006 has been the Costco Hotdog and Soda . So, which we still enjoy . That's true. And I love the fact that the CEO is adamant that that is never going to. At least for now, we appreciate that we do.
And uh, but right now they're finally going to allow Ira Contribu contributions to, uh, increase with inflation. So that catch will actually increase, and that'll be good for those who participate in a traditional ira. Okay, number three, auto enroll mandate. So part of this whole bill is around the fact that there's this retirement crisis that everybody talks about how in decades from now there's going to be this massive gap of how much people need to live off of in retirement and how much they have saved.
And research has shown that there's a significant number of people who don't contribute to their employer plan even when they're offered a matching contribu. . So with the Secure Act 2.0, employers would be required to auto-enroll their employees into their retirement plan. And if you don't want to participate, then you would have to unenroll manually.
But it's more of a manual process, which I think that one's kind of nice actually. I mean, yeah, for the people who might, I don't know, I don't wanna say lazy, but who maybe are like, oh, you know, I'll start contributing next time, or, yeah, in a month or whatever. And this is, you know, Congress and the US is really just trying to get ahead of that eventual retirement crisis they talk about, and hopefully more people are going to participate.
So in keeping with that, that leads us to number four, the auto-enroll savings percentage. Yeah. So not only are they going to automatically enroll you, they're going to automatically enroll you at 3% of your pay, and that is going to increase every single year by 1% until you reach 10. Now, once again, you can opt out of that, but this is just making it to where you are continuously increasing, how much you put in every single year.
If you don't ever check this plan. But if you're starting a new job and you wonder why your paycheck might be a little light, just make sure you check the company's 401k because it's likely going there after the auto enrollment with your forced savings. That's right. Okay. Number five, increasing the age at which you must begin taking rm.
Again. Yeah, the original Secure Act bumped it up from 70 and a half to age 72, and now it's going to go all the way up to age 75. But wait, there's more. Of course. There's more. Yeah, they, they can't just make it simple. It's going to be phased in over the next few years. Based on your age, and you just gotta love how they make things complicated.
It just can't be easy. A simple Dayton in time. Uh, but there's actually one funny thing is that especially if you were born in 1959, it's going to be a little bit more complicated because right now in the bill, there is verbiage that that age has two different ages at which you must take RMDs. Oh, good.
So if you're born in 1950, Good luck figuring that out. If it's past the format it's in right now. Hopefully there's some sort of, uh, you know, I would say conclusion to that when they actually sign this thing. But, uh, who knows? Because right now that one's a little bit, uh, convoluted. At best it is. It's, but luckily it's only for people born in 1959 and most lucky chosen ones as lucky, chosen ones, but at least it's not as complicated as inheriting an IRA was after the Secure Act 1.0.
But you know, it makes it a little bit more difficult. So speaking of RMDs, that leads us into number six. There will be an RMD exemption. That's right. Uh, right now as it's written, the new rule is going to look at your combined qualified account balances. So this is 401ks, traditional IRAs, and if that balance, the total balance is less than a hundred thousand dollars, then you would be exempt from an rmd.
That's kind of a nice one. It is because the whole purpose of an RMD is. Pay taxes, uncle Sam. So, uh, it kind of allows that to continue to compound. Finally, a nice one that seems, you can actually see the benefits of that one. That's right. Okay. Number seven, RMD penalties are also likely to change. Yeah, right now they are.
If you miss an R md, that penalty is 50% of Steve the RMD amount. Steve, even if you miss it by a day. Yeah, I mean there is no gray area. That is a hard and fast 50%. That's right. So if you spent, you know, the week between Christmas and New Year's just completely out of it and partying and having fun with family, and you forget to take your RMD and you'd wake up on January 2nd going, I need to take this, well, it would've been a 50% penalty.
The new rule is likely to change that to either a 25% penalty or even a as low as a 10% penalty based on the timing in which it's change and. That would be nice. 10% would be very nice. It would be much better than, you know, the outrageous 50%. That's right. I might as well just give 'em the whole thing if that pretty much just forget about it.
It's going. Number eight. One big change that's proposed would allow employer matching funds to be directed into the Roth portion of your four. Oh. . This is a huge one. It is because right now all matching funds go into the pre-tax and this would direct. Into that Roth portion. Now you would have to pay taxes on whatever that matches.
They'd likely issue you a 10 99 or add that to your, uh, your w2, but it would be free money going into a Roth. And you know, depending on how long until your retirement, this allows that money to compound. And we all know the benefits. Of having a Roth ira, especially in retirement. So this is, which we have also done an episode on, so definitely go back and catch that one if you That's right.
Haven't, yeah. But this is a, this is a big one because that's free money going into a Roth that, uh, you know, wasn't available before. So I think that's a huge, huge change. That is another positive one. That's right. Number nine. Five to nine. Sorry. See that I stifled it though. 5 29 to Roth IRA transfers.
That's right. We're not gonna edit that out either. . Uh, so right now the, there are restrictions to this, so we're just gonna go through the highlight of this because this one can get a little complicated. But right now, if you contributed to a 5 29 for your kids' entire life and they go to school and they don't use all those funds, there's always been this, okay, what can we do with that?
Kind of just sits usually. Yeah. And now there can, you can actually transfer that to the beneficiary so the money can't be transferred into a Roth for the parents or the owners. So you're not getting that back, just to be clear. Yep. So if your kid gets a scholarship to college, and you have this money that's set aside in a 5 29 plan, Well, they get a scholarship and maybe a retirement account if you choose to go that route.
But like I said, they're, see, it pays to be smart. It does, but they pay attention in school. There are restrictions with this. Um, and so I really make sure to understand the rules because you have to have the account for over 15 years, so it has to be maintained for over 15 years and there's a lifetime maximum transfer limit of $35,000.
So you can't just load this thing up and then transfer a very large Roth to. You know, to the beneficiary. It's just a portion of that, also a good one. It is. But those are just some of the major changes that are coming your way in retirement plans. Uh, there are, like I said, over a hundred provisions that are likely to be changed.
Even some for those who have. Student loan debt and even for, you know, tax free or, uh, favorable withdrawals for emergencies. There are a lot of different things in this bill, but we just wanted to unpack some of the major changes that are coming. Um, but if you have specific questions about how this law changes for your retirement, make sure you head to retirement show.com.
You can send us a question or you can schedule some time with a member of our. Where we would be happy to walk through your specific circumstances. Uh, but with that, what do we want you to do before you get outta here? We want you to subscribe. We want you to always catch one of these episodes. That's right.
Even when Melissa's voice is back and in full force, we want you that, especially then . That's right. So join us next time on the Retirement Show. I'm Johnathan Rankin. And I'm Melissa Rankin. Thank you so much for joining us.
Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. – Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by email@example.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.
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