IRS Updates 401k Rules
/Recent IRS Updates
Back in March, we published a list of legislative changes the Secure Act 2.0 brought. The IRS has since released some clarifications that will impact savers. To see our previous article for more details on Secure Act 2.0, refer HERE.
401(k) Catch Up Contributions
One of the most significant new rules included in the legislation is the requirement for 401(k) catch up contributions for individuals earning $145,000 or more to be Roth contributions, disallowing the traditional 401(k) pre-tax option. Initially this rule was slated to take effect in the 2024 tax year. The IRS has now delayed implementation by two years, and it will not be effective until 2026. The full IRS news release can be found HERE.
Inherited IRA Distribution Rules
In 2020, the predecessor to Secure 2.0, the Secure Act, changed the distribution rules for inherited IRAs. Starting in 2020, the new distribution rule required many beneficiaries to take annual Required Minimum Distributions (RMDs) and empty the account in 10 years. Early interpretations of this rule were not clear, and many experts understood the requirement to solely be to empty the account within 10 years, with no RMDs. The IRS has since confirmed this interpretation is incorrect, and that RMDs are necessary. In July 2023, however, they announced that they would be waiving penalties for missed RMDs for the 2023 tax year, and would start enforcing the rule in 2024. Requirements and strategy surrounding the 10 year withdrawal rule remain complicated and fluid subject to further IRS clarification. For the most up to date interpretation of what these changes mean for you contact your advisor or the CCP Advanced Planning group. The full IRS Notice can be found HERE.
