401k Update: IRS Releases New Guidance on Retirement Plans Under SECURE Act 2.0 Section 603

[@noelsiro]

Great info brother!! 🔥🔥🔥

[@TravisSickle]

Thank you!!

[@drpaine7428]

Right now I contribute the max to my 401k on the traditional side. (22,500). I also contribute non-roth after tax contributions that my plan allows for (12%), which i then rollover to a Roth IRA. If I am over 50, I would also be able to do an additional $7500 to the Roth side of my 401k per these new rules? Could I immediately roll that over to the Roth IRA as well ?

[@TravisSickle]

You can check your plan docs to see if your plan allows in service distributions.

[@drpaine7428]

@@TravisSickle yes its the reason why i do the non roth after tax contributions.. i backdoor that into a Roth IRA... question is can i also do the 7500 catch up and roll that over as well ? if im over 50 etc..

[@educatedwanderer9293]

My base pay is 80k but with overtime and incentives I earn 160k. I'm over 50, so from the sound of it I'm in that group. Currently I put all my contributions into the Roth anyways. The only thing that might have to change is the matching funds my employer provides which is currently going in pretax.

[@TravisSickle]

maybe if you're employer updates their plan docs you could elect to have those matching contributions go directly to the Roth side without needing to convert.

[@bh6984]

Hi Travis, learning so much on your channel, thank you. Wife and I are sole owners/employees of small business, file as S-Corp and have only contributed one tax year to a SEP-IRA. Much of what I have learned has us leaning towards moving to a solo 401 to maximize yearly contributions. We have our SEP-IRA account with Fidelity and when I look into opening a solo 401K, Fidelity indicates that yearly contributions are required for the solo 401k whereas with the SEP, we would be able to opt out of yearly contributions, if deemed necessary. Is that a general rule across all brokerages that solo 401K plan must be funded annually? Also, do you have a video discussing rolling an existing SEP-IRA into a solo 401K plan...I wasn't sure if it was a complicated process, if there are limits or implications to current tax year retirement account contributions when rolling one plan type into the other. Thank you so much!

[@TravisSickle]

Yearly contributions are not required. Drop link to where you read it. thanks.

[@brucestiles6477]

I read somewhere that employer matching contributions can be made as Roth contributions. How would that work? I doubt that many employers would give up the tax deduction. Would employees be able to decide to pay tax on employer matching contributions so that they could be made as Roth contributions? I'm trying to imagine what new Form W-2s would look like.

[@TravisSickle]

SECURE ACT 2.0, yes, that is correct. However, it has to be in your plan docs to allow it. Also, it would be taxable to the employee since it's after tax. Business still gets a deduction.

[@brucestiles6477]

@@TravisSickle I should have stated my assumptions. Yes, it's a new aspect brought about by SECURE Act 2.0, and the provision has to be in the plan document. I'm trying to figure out how it would be implemented. Counted as income each paycheck, with corresponding withholding? Counted as income only at the end of the year, with taxes under-withheld? My guess is that the employer match would have to be added to the paycheck as income that is taxable, but not subject to FICA. I can think of deductions that are taken and not subject to taxation (e.g., HSA contributions), but I cannot think of any other item of income that fits this category. I am thinking that it will be a completely new category of income. And an accounting headache.

[@TravisSickle]

I haven't seen any IRS guidance on it yet. It's likely not a big deal for the employer, since it's just an expense. Payroll will have to handle it and the reporting will fall on the admin. Withholding may fall to the employee and may not adjust on the paycheck. Will just wait for guidance.

[@wdeemarwdeemar8739]

I Live in the Bay Area 145 k a year you could buy a shoe box… high income my azz.

[@ilyaw.3081]

is $145k gross or net?

[@TravisSickle]

Gross, the amount is based on wages subject to FICA taxes. It should be based on box 5 of your W2 since Medicare wages would include all of it. Contributions to your 401k are still subject to FICA taxes. Only pre-tax contributions avoid federal income taxes but none avoid the FICA taxes.