Roth and the SECURE Acts

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Deferring taxation is powerful when saving for retirement. Those in high tax brackets generally benefit from deferring income from peak earning years to retirement—when income should be lower. Traditional IRAs and business retirement plans help accomplish this. However, tax-free income in retirement can be powerful as well. The SECURE Act 2.0 passed at the end of 2022 had some important changes for Roth accounts.

No RMD in Roth 401(k) Plans

Prior to the new SECURE Act, owners of Roth IRAs were the only ones who didn’t have to take required minimum distributions (RMDs) from their retirement accounts. Those who held assets in Roth 401(k) plans had RMDs just like traditional retirement plans. Starting in 2024, Roth 401(k) accounts are no longer subject to RMD withdrawal schedules.



The elimination of stretch-IRAs from the first SECURE Act still applies. Non-spouse, named beneficiaries of Roth accounts must still remove the assets from the inherited IRAs by the end of the 10th year from the date of death.

Additional Catch-Up Contributions

Those of us who are aged 50 or older are currently able to make “catch-up” contributions to our business retirement plans of $7,500/year. Beginning in 2025, those who are aged 60-63 will be able to increase these additional contributions to $10,000/year. There’s a catch, though…

Catch-up Contributions Required to be Roth

Beginning in 2024, employees’ catch-up contributions must be made on a Roth basis if prior-year wages were above $145,000. This means that higher-earning employees will have a greater tax bill as they will no longer be able to exclude these catch-up contributions of $7,500/year or more from their peak income.

Small employers that don’t already have a Roth option in their retirement plans will have to update their plans if they want to make catch-up contributions. The act stipulates that unless a plan allows catch-up contributions in Roth accounts, no one in the plan will be able to make catch-up contributions!

Optional Treatment of Employer Contributions as Roth

Prior to SECURE Act 2.0, employer contributions made to employee accounts could only be on a pre-tax basis. Effective immediately, plan sponsors may choose to make their matching contributions to Roth accounts. All employer contributions treated as Roth will be immediately 100% vested. Note though, as Roth contributions don’t allow for a current year tax deduction, this type of employer addition will be included in the employee’s gross income for the year.

SIMPLE and SEP IRAs May Now Accept Roth Contributions

Many small and solo business owners use SIMPLE IRAs and SEP IRAs to increase their retirement savings without the cost and administration of 401(k) and similar plans. One drawback was the inability to save in Roth accounts. No more. Now, starting this fiscal year, both SIMPLE and SEP IRAs can offer Roth options. Implementation of this part of the act is still in process so consult a trusted tax professional and update plan documents prior to making these changes.

Bear in mind, as above, shifting to the Roth option makes more of today’s income taxable. As a general rule, those in the top marginal tax brackets get their greatest benefit from deferring their current income to the future—as is done in traditional retirement accounts. Those in lower tax brackets may find their best benefit is having tax-free retirement income. This trade-off requires thoughtful financial planning.


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Qualified Charitable Distributions

Beginning this year, retirement account holders subject to RMDs may make a one-time gift to a split-interest entity up to $50,000. This split-interest entity could be a charitable remainder unitrust, charitable remainder annuity trust, or a charitable gift annuity. This $50,000 gift is part of the overall Qualified Charitable Distributions limit for the year.

There are other provisions of both SECURE Acts that deserve greater attention and I have addressed many of them in prior articles.

Consult with proper tax, financial, and legal professionals before taking advantage of these new provisions. Some of the details are yet to be ironed out and changes to tax laws or regulations may occur at any time. One thing is clear, though … the SECURE Acts have significantly changed the retirement landscape.

Patrick Yanke

Patrick Yanke is a Raleigh-based financial advisor. Opinions expressed here are mine and not necessarily those of Raymond James. The information is not a complete summary or statement of all data necessary for making an investment decision and does not constitute a recommendation. You cannot invest directly in any index and past performance is not a guarantee of future results. There is no guarantee that statements, opinions or forecasts provided will prove to be correct. Dividends are not guaranteed and must be authorized by the company’s board of directors.

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