Last Updated: December 23, 2024

The Secure Act 2.0 has other provisions that might be worth knowing about. Some of these items might not be as widely beneficial to all pre-retirees or retirees, but they can be applicable in certain circumstances. 

If they apply to you, consider adding them to your long-term retirement planning.

Employer Roth Contributions¹

In the past, if you had a Roth account with your employer, any matching contributions on their part were made pre-tax.

For example, if you were contributing to a Roth 401(k) at work, your employer would essentially create a traditional 401(k) for you and all the matching contributions from the employer would go into that traditional account. Later, when withdrawing from the account, you’d have to pay taxes on the employer match.

Now, thanks to Secure Act 2.0, you can designate after-tax employer contributions to your Roth account, giving you the full tax advantages you sought when setting up a Roth in the first place. Remember, if you make over $145,000 starting in 2026, any catch-up contributions must be designated as after-tax Roth contributions.

Roll 529 Plan Funds to a Roth IRA²

A 529 plan is a type of education savings account that allows you to invest money to use for college and other educational experiences. You make after-tax contributions to the account and can then withdraw money (including earnings) tax-free as long as the money is used for qualified education expenses.

However, if you withdraw funds for a use other than qualified expenses, you pay taxes and a penalty. Starting in 2024, Secure 2.0 changes this. You’ll be allowed money in 529 plans that have been active for at least 15 years to be rolled over into Roth IRAs. Roth IRAs feature after-tax contributions, so their tax treatment is similar to 529 plans.

This rollover can be useful for those who don’t use all the money in a 529 plan. If you created a 529 plan for your children and some of it has gone unused, you now have an option to roll unused funds into a Roth IRA for the plan’s beneficiary. 

This means you can potentially transform unused 529 funds into becoming part of your estate and inheritance planning, instead of paying penalties to access the money.

The rollover is subject to annual contribution limits and has a lifetime limit of $35,000.

SIMPLE and SEP can Designate Roth IRAs³

SIMPLE and SEP IRA plans are often used by the self-employed and small business owners to save for retirement. However, these accounts have not had a Roth option in the past.

Some small business owners and self-employed workers like SIMPLE and SEP IRAs because they have higher contribution limits than Traditional and Roth IRAs. Prior to Secure 2.0, their only choice was to contribute to a Roth IRA and then to a SEP or SIMPLE.

Secure 2.0 allows for SIMPLE and SEP IRAs to have a Roth designation. For small business owners and self-employed workers, this provides a new opportunity for setting aside money in a Roth account for future withdrawals. This can provide a way to diversify retirement tax planning for those who haven’t been able to access Roth benefits in SIMPLE and SEP IRA accounts. 

Roth 401(k)s Exempt from RMDs

Several years ago, the ability to make Roth contributions to a 401(k) was introduced. Some workers liked the idea of having access to this benefit, rather than needing to open a separate Roth IRA to diversify their tax planning for retirement. 

However, unlike Roth IRAs, which never had RMDs, Roth 401(k) plans had mandatory distributions. Secure 2.0 gets rid of this discrepancy. Now, Roth 401(k)s are no longer subject to RMDs. Secure 2.0 provides that any account designated as a Roth account has no RMDs. So, in the future, if more accounts come with a Roth designation, there won’t be clashing rules.

Six New 10% Early Withdrawal Penalty Exceptions

There are certain life events when accessing retirement funds early becomes necessary, regardless of the associated taxes and penalties. The Secure 2.0 Act introduced six new scenarios that allow for penalty-free early withdrawals from retirement accounts, including:

1. Financial emergencies
2. Federally declared disasters
3. Qualified long-term care distributions
4. Pension-linked emergency savings accounts
5. Terminal illness
6. Domestic abuse

These additions expand the range of situations where individuals can access their retirement savings without incurring penalties. Each exception has its own qualification requirements, withdrawal limitations, and repayment terms.

SOURCES

1. Secure Act 2.0, U.S.C., H. R. 2617—934 (2022). https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf
2. Secure Act 2.0, U.S.C., H. R. 2617—858 (2022). https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf
3. Secure Act 2.0, U.S.C., H. R. 2617—932 (2022). https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf