Last year, we called out six specific areas of the bill that were particularly interesting to us and our clients.

Now that a year has gone by, it seemed like a good time to remind ourselves of some of the most important changes going into effect this year.

529-to-Roth rollover

This benefit is really for the kids, and probably won’t do much to help anyone reading this retire even a dollar richer. But it’s still pretty exciting for many parents.

Assets in 529 plans can start to be rolled into Roth IRAs, beginning this year.

One of the big fears, historically, with 529 accounts was overfunding. What would happen if your kids didn’t need the money for education expenses? It was taxed and penalized if not used for qualified education expenses.

Now, there’s a new, and potentially very attractive, option. Assets can be rolled from a 529 account to a Roth IRA, with the beneficiary as owner. There are a few strings attached, but it’s pretty straightforward. We spelled out those details last year - click here to read more.

It’s tough for me to think of cons with this new feature. It feels like a big win for families with kids. Perhaps there’s an opportunity cost for the parents. Contributions made to the 529 could have been deployed elsewhere like taxable brokerage accounts where parents have greater optionality.

Based on our experience, many families like the idea of complementing 529 plans with other types of accounts, even those that are simply earmarked for future education expenses. Mental accounting can be used to your advantage!

Roth for SEP and SIMPLE IRAs

The Roth IRA was introduced in 1998 and quickly became a preferred retirement savings vehicle, primarily due to the favorable tax treatment of distributions.

SEP and SIMPLE IRAs have been popular retirement plans for small businesses, largely due to their simplicity and relatively low cost.

Beginning in 2024, Roth options are available within SEP and SIMPLE IRAs. For those who prefer to pay income tax today and grow a bucket that can produce tax-free income in retirement, the Roth will be worth consideration.

Pay down student loans **AND** save for retirement

Younger workers may be forced to choose - pay down loans or save for retirement?

Beginning this year, they could do both. Employers can match those loan payments as if they were 401(k) contributions, for example, by making retirement plan contributions on behalf of those workers.

Tax credits for business owners installing new retirement plans

Are you a small business owner (or do you know one) without a retirement plan? Then pay attention to this one.

One of the hurdles for installing a plan for yourself and your employees has been cost. What if you could recoup those costs via a tax credit

SECURE Act 2.0 provides just that - a dollar-for-dollar tax credit, up to a maximum $5,000, for startup costs, and it lasts for three years. There are some details you’ll need to know. For example, the credit covers 50% of eligible startup costs. If you have more than 20 non-highly compensated employees (but fewer than 100), you could qualify for $5,000 in credits.

Reach out with questions or start by clicking on the link above. These credits are available for plans including SEP IRAs, SIMPLE IRAs, and 401(k) plans.

Surviving spouses, particularly OLDER survivors

Assets in 401(k) plans and other retirement accounts may be subject to required minimum distributions, or RMDs.

Beginning in 2024, the surviving spouse beneficiary of an inherited retirement account may be able to take those RMDs according to the deceased spouse’s schedule.

For those couples where a large age gap existed, and the older spouse is the survivor, this could mean lower required distributions, and a lower tax bill as a result.

Bonus Reminder #1: No Roth RMDs

Assets in 401(k) plans, at some point, need to be withdrawn during the owner’s life.

With Roth 401(k) assets, that is no longer the case. No tax liability is owed on distributions, so RMDs are no longer an issue with Roth 401(k) assets, just as they are not required from Roth IRAs.

BONUS Reminder #2: Emergency savings & Roth

Are you eligible to contribute to a 401(k), 403(b), or 457(b) plan?

If so, you may have access to a new way to help pay for those times when the unexpected happens. These accounts can be funded with after-tax contributions from employees, matching contributions from employers, or direct employer contributions. The cumulative limit is currently $2,500, but will rise with inflation.

Assets grow tax-free and can be withdrawn penalty-free if used for qualified emergencies.

If you find 4,000+ page pieces of legislation difficult to digest, we’re here to help!

Reach out to the team or schedule with us if you want to discuss how some of these new changes might impact your situation.

Divvi Wealth Management (DWM) is a State registered investment adviser. Information presented is for educational purposes only intended for a broad audience. The information does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. DWM has reasonable belief that this marketing does not include any false or material misleading statements or omissions of facts regarding services, investment, or client experience. DWM has reasonable belief that the content as a whole will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the adviser’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, nature and timing of the investments and relevant constraints of the investment. DWM has presented information in a fair and balanced manner.

DWM is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.

DWM may discuss and display, charts, graphs and formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. Consultation with a licensed financial professional is strongly suggested.

The opinions expressed herein are those of the firm and are subject to change without notice. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions, and may not necessarily come to pass. Any opinions, projections, or forward-looking statements expressed herein are solely those of author, may differ from the views or opinions expressed by other areas of the firm, and are only for general informational purposes as of the date indicated.