3 Tax Facts That Executives and Business Owners Need to Know About SECURE 2.0

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Happy New Year Everyone!

While many of us took advantage of some downtime during the Holidays, our elected representatives in Congress passed an 1800-page tax bill known as SECURE 2.0 which contains several items that well compensated executives and business owners should understand as they manage their finances over the next several years

I’m Chuck Lewandowski CERTIFIED FINANCIAL PLANNER ™ professional, and today I’m going to highlight three features of the Act that may impact retirement savings opportunities for high wage earners and their families

1. SEP and SIMPLE IRA’s may now include Roth contributions – Prior to the Act, SEP and SIMPLE IRA’s could only accept pre-tax contributions. Beginning this year, both small business retirement plans may include the ability to make Roth contributions. Sole proprietors and business owners can now enjoy features like those found in 401k plans.
2. Roth Requirement for Certain High Wage Earners’ Catch-Up Contributions – 401k participants over age 50 are eligible to contribute $7500 as a catch-up contribution in addition to their normal contributions.  Beginning in 2024, if you made $145,000 in the previous year at a single employer, your catch-up contribution must be directed to a Roth option, which is an after-tax feature of the plan. Pre-tax options are not available for the catch-up for those employees.
3. 529 Educational Savings Plan Funds May be Transferred to a Roth IRA- This feature helps those who saved funds for their child’s education, but the child doesn’t use the money. Previously, those funds could be transferred to another beneficiary, but they must stay in a 529 plan or risk potential tax penalties. Beginning in 2024 the current law allows for some of those funds to be transferred to a Roth account. There are several restrictions as to who is eligible and how much can be transferred but at least some of those dollars can now be used for purposes other than education.
4. BONUS NUGGET – Solo 401k may be established for the previous year – If you’re an executive who decided to free-lance for pay during the year, up until now you would have had to establish a Solo 401k by December 31^st of that year to shelter some of those earnings. If you missed that deadline, your only option was to establish a SEP IRA. As a result of the Act, you can now establish the 401k plan up to the date you file your tax return for the year in which you earned the money.

SECURE Act 2.0 contains many additional provisions that may affect your retirement contributions and savings. Changes to required distribution ages, Catch-up contributions, and employer matches are just a few of the modifications that you should understand. If you need help figuring out how you need to address these changes, please give me a call and Let’s Make a Plan!

Advisory services offered through Capital Analysts or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC.www.lincolninvestment.com West Coast Financial Group, Inc. and the above firms are independent and non-affiliated. Tax advice is not offered through, nor supervised by Lincoln Investment or Capital Analysts.