What are Roths?
Roth accounts — whether a Roth IRA or a Roth 401(k) — are common retirement plans that have a different tax treatment than a traditional Roth or 401(k). You deposit after-tax funds in these types of accounts, and then don’t pay any tax on your withdrawals in retirement.
US legislators passed Secure 2.0 this past December, which added several key provisions to make these retirement tools more accessible and flexible.
Secure 2.0 made 4 key changes to Roth IRA retirement plans:
- Catch-up contributions for high earners: If you’re age 50 or older and have maxed out your 401(k) contributions for the year, you will now be able to contribute an additional $7,500 in catch-up contributions.
- SIMPLE and SEP IRAs: These plans, which are common among small businesses, can now be designated as Roth IRAs.
- Employer match for 401(k) plans: Employers can now give employees with 401(k) plans the choice to have their contributions matched on either a pre-tax or after-tax basis.
- Distribution rules: Starting next year, Roth 401(k)s will no longer be subject to minimum distribution rules, meaning you won’t be required to take money from them if you don’t want to.
Additionally, in specific cases, high-income earners will need to put a portion of their 401(k) into a Roth account.
What to Know
Retirement plans like Roth IRAs, Roth 401(k)s, and 401(k)s are a retirement staple for many Americans. Overall, these new provisions are designed to make retirement plans more accessible and valuable to more people.
If you already have a retirement plan in motion, you’ll most likely want to speak with a financial professional to see if these new provisions impact you in any way. For example, if you’re over 50, it may be worth budgeting to take advantage of the extra $7,500 per year you’re now allowed to contribute to your plan.
Meanwhile, if you have yet to open a retirement account, consider this your sign to get started! As they say, the best time to plant a tree was 20 years ago. The second best time is today.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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