#retirementplanconsulting

In December 2022, Congress passed the SECURE Act 2.0. It introduced two new rules relating to 529 plans and student debt that will take effect in 2024.

The first provision allows for tax- and penalty-free rollovers from a 529 plan to a Roth IRA. The second provision allows student loan payments made by employees to qualify for employer retirement matching contributions. The overall goal is to help young adults start saving for retirement.

New 529 Rollover Option

529 plans are tax-advantaged savings accounts specifically geared to saving for college. In an effort to broaden the flexibility of 529 plans in situations where families have extra funds in an account, Congress created a new rollover option.

Starting in 2024, 529 plan beneficiaries can roll over up to $35,000 to a Roth IRA over their lifetimes. The rollover is not subject to taxes or a penalty that would typically apply to a non-education use of funds. This new rollover option can allow a young adult to get a head start on saving for retirement.

Here’s how it will work:

• The beneficiary of the 529 plan must be the owner of the Roth IRA.
• Any rollover is subject to annual Roth IRA contribution limits, so a beneficiary can’t roll over $35,000 all at once. For example, in 2023, the Roth IRA contribution limit is $6,500 (for people under age 50) or earned income, whichever is less. If the limit remains the same in 2024, a beneficiary would be able to roll over up to $6,500. If the beneficiary earns $4,000 in total income in 2024, then the maximum amount that could be rolled over is $4,000.
• In order for the rollover to be tax- and penalty-free, the 529 plan must have been open for at least 15 years. If the 529 account owner (typically a parent) changes the beneficiary of the 529 plan at any point, this will restart the 15-year clock.
• Contributions to a 529 plan made within five years of the rollover date can’t be rolled over — only 529 contributions made outside of the five-year window can be rolled over to the Roth IRA.

New Option for Employer Treatment of Employee Student Loan Payments

In addition to making 529 plans more flexible with a new rollover option, the SECURE 2.0 legislation seeks to help employees who have student loans and are making monthly loan payments. Employees with student loan debt often have to prioritize repaying their loans over contributing to their workplace retirement plan, which can mean missing out on potential employer retirement matching contributions. Starting in 2024, employers will have the option to treat an employee’s student loan payments as payments made to a qualified retirement plan (student loan payments will be considered “elective deferrals”), which would make those contributions eligible for an employer retirement match (if the employer offers this benefit).

Our team of Certified Financial Planner™ (CFP®) professionalsis here to construct your comprehensive financial plan and help you start saving for retirement.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

Congratulations! Your company offers a retirement plan for employees to save for their future. Did you know you might now be a fiduciary as well? If you meet one of the criteria below, you may now have fiduciary responsibility and liability:

1. “Named Fiduciary” – The named fiduciary is most often the plan sponsor, who is typically either the owner of the company or the Board of Directors.
2. “Functional Fiduciary” – Even when you are not a named fiduciary, you may be a fiduciary if you either:
   1. Exercise any discretionary authority or control over the management of the plan or its assets.
   1. Have any discretionary authority or responsibility over the administration of the plan.

Who are Common Fiduciaries?

1. Employers and Plan Sponsors are often named fiduciaries or become functional fiduciaries through their actions.
2. Corporate Officers or Board of Directors are not automatically fiduciaries, but if they are responsible for the selection of other plan fiduciaries, such as an investment advisor or ERISA counsel, then they are acting as a functional fiduciary.
3. Retirement Committee Member are fiduciaries to the retirement plan if they are serving on your company’s retirement plan committee and they have discretionary authority or control over the plan and its assets.

Reach out to one of our Retirement Plan Advisors today to see if you might be a fiduciary to your plan, and more importantly, see how to mitigate the liability that comes along with such a responsibility.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By: Tina Schackman, CFA®, CFP®, Senior Retirement Plan Consultant

It’s important to note that not all retirement plans allow loans to be taken, so you should consult with your benefits department or contact your plan’s administrator before considering a loan from your employer-sponsored retirement account (i.e., 401k, 403b, etc.). Whether or not to take a loan from your employer-sponsored retirement account is a significant decision that comes with both potential advantages and drawbacks.

Advantages of a Loan

1. Accessibility: If you have a financial emergency or immediate need for a large sum of money, a loan might be an accessible source of funds, especially if you have difficulty getting a loan elsewhere.
2. No Credit Check: Your credit score isn’t a factor in obtaining a loan because you’re borrowing your own money.
3. Potentially Lower Interest Rate: The interest rate on a loan may be lower than what you would pay on a personal loan or credit card debt.
4. Repayment to Yourself: When you pay the interest on a loan, you’re paying it back into your retirement account, so you’re essentially paying the interest back to yourself.

Drawbacks of a Loan

1. Opportunity Cost: When you take money out of your retirement account, that money is no longer invested in the market. Therefore, you could miss out on potential growth and compounding interest, which could impact your long-term retirement savings significantly.
2. Double Taxation on Interest: While the money you borrow from your retirement account isn’t taxed when it’s taken out, the money you repay, including the interest, is done with after-tax dollars. When you retire and begin withdrawing from your retirement account, you’ll have to pay taxes again on those funds.
3. Loan Repayment After Leaving Job: If you leave your job or are terminated (whether voluntarily or not), you’ll typically have to repay the entire loan within a short time, often 60 days. If you don’t, the remaining balance is considered a distribution and could be subject to income tax, plus a 10% early withdrawal penalty if you’re under age 59 ½.
4. Possible Reduction in Retirement Contributions: If you’re paying back a loan, you might find it difficult to also continue contributing to your retirement account, especially if finances are tight. This could further reduce your retirement savings and impair your retirement goals.

In general, it’s often recommended to view an employer-sponsored retirement account loan as a last resort after considering other options, such as an emergency fund, budget adjustments, personal loans, or even home equity lines of credit. While a employer-sponsored retirement plan loan might make sense in certain situations, it’s crucial to understand the potential impact on your long-term financial health.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

In late May 2023, Congress sent a letter to U.S. Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel saying that it will introduce legislation to correct several technical errors in the SECURE Act 2.0. The letter, signed by Senators Ron Wyden (D-OR) and Mike Crapo (R-ID), chair and ranking member of the Senate Finance Committee, respectively, and Representatives Jason Smith (R-MO) and Richard Neal (D-MA), chair and ranking member of the House Ways and Means Committee, respectively, describes four provisions in SECURE 2.0 with problematic language.

1.           Startup tax credit for small employers adopting new retirement plans

2.           Change in the required minimum distribution (RMD) age from 73 to 75

3.           SIMPLE IRA and SEP plan Roth Accounts

4.           Requirement that catch-up contributions be made on a Roth basis for high earners

Startup Tax Credits for Small Employers

Section 102 of SECURE 2.0 provides for two tax-credit enhancements for small businesses who adopt new retirement plans, beginning in 2023.

First, for employers with 50 employees or fewer, the pension plan startup tax credit increases from 50% of qualified startup costs to 100%, with a maximum allowable credit of $5,000 per year for the first three years the plan is in effect.

Second, the Act offers a new tax credit for employer contributions to employee accounts for the first five tax years of the plan’s existence. The amount of the credit is a maximum of $1,000 for each participant earning not more than $100,000 in income (adjusted for inflation). Each year, a specific percentage applies, decreasing from 100% to 25%. The credit is reduced for employers with 51 to 100 employees; no credit is available for those with more than 100 employees.

In the letter, the authors note, “The provision could be read to subject the additional credit for employer contributions to the dollar limit that otherwise applies to the startup credit. However, Congress intended the new credit for employer contributions to be in addition to the startup credit otherwise available to the employer.”

Change in RMD Age

Numerous observers have noted that a technical correction is needed for Section 107 of the Act, which raised the RMD age from 72 to 73 beginning this year, and then again to 75 in 2033. The letter’s authors noted that the intention was to increase the age to 73 for those who reach age 72 after December 31, 2022, and to 75 for those who reach age 73 after December 31, 2032. However, as written, the provision could be misinterpreted to mean the age-75 rule applies to those who reach age 74 after December 31, 2032.

SIMPLE IRA and SEP Roth Accounts

Section 601 of the Act permits SIMPLE IRAs and Simplified Employee Pension plans to include a Roth IRA. As written, a reader might interpret the provision to mean that SEP and SIMPLE IRA contributions must be included when determining annual Roth IRA contribution limits. As the letter explains, “Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit.”

Roth Catch-up Contributions for High Earners

Addressing what the American Retirement Association called a “significant technical error” in Section 603, the letter clarified a rule surrounding catch-up contributions for high earners. Specifically, the rule’s intent was to require catch-up contributions for those earning more than $145,000 to be made on an after-tax, Roth basis beginning in 2024; however, language in a “conforming change” detailed in the provision could be interpreted to effectively eliminate the ability for all participants to make any catch-up contributions.

The congressmen’s letter clarified that, “Congress did not intend to disallow catch-up contributions nor to modify how the catch-up contribution rules apply to employees who participate in plans of unrelated employers. Rather, Congress’s intent was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or Roth basis.”

No time frame given.

Although the letter provided no specific time period for introducing the corrective legislation, it did indicate that such legislation may also include additional items. Stay tuned!

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

A recent survey from TD Ameritrade showed only 27% of 401(k) participants knew how much they were paying in fees, and 37% mistakenly believed their retirement plan was entirely free! We’re here to set the record straight about 3 common retirement plan myths:

1. The Retirement Plan is Free – Don’t shoot the messenger, but retirement plan service providers do not work for free. If it appears your retirement plan has no explicit costs, it’s because your providers have done a great job of burying their compensation in the Plan’s investment options, and what you can’t see you can’t measure! If this is the case, you are required as a fiduciary to “know your Plan’s fees”.
2. All Participants Share Equally in Plan Fees – If your retirement plan utilizes revenue sharing to cover its administrative costs, chances are there is a highly unequal distribution of fees across your participants. Some investments may contribute nothing to the administrative costs of the Plan, while others may contribute more than is needed. 
3. The Plan’s Recordkeeper Already Provides Adequate Fee Benchmarking – Recordkeepers are in business to make money and they are not fiduciaries to your plan participants. While provider fees may well be reasonable, it is the responsibility of the plan sponsor to independently benchmark fees against the broader marketplace.

Reach out to one of our Retirement Plan Advisors today to see if your plan is receiving competitive fees from your service providers.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.