Looks like the govt spending bill will pass, it includes most "SECURE 2.0" items

[rantk81]

https://www.forbes.com/sites/kristinmckenna/2022/12/20/secure-act-20-to-bring-sweeping-changes-to-retirement-rules/

The one that caught my eye is being able to roll over 35K from a 529 to a Roth IRA without a tax penalty.  Could be an additional way for a couple to get 70K more (35K each) into Roth over their lifetimes.  My spouse and I have absolutely no use for 529 plans, as we are close to FIRE now anyway, and have no children.... but this may cause me to consider opening up a 529 in each of our names.  The tricky part will be, estimating how much we should invest right now, to try to hit the "35K" number at the end of the "15 year" duration that the funds must remain in the 529 plan! Heh.

[seattlecyclone]

https://www.forbes.com/sites/kristinmckenna/2022/12/20/secure-act-20-to-bring-sweeping-changes-to-retirement-rules/

The one that caught my eye is being able to roll over 35K from a 529 to a Roth IRA without a tax penalty.  Could be an additional way for a couple to get 70K more (35K each) into Roth over their lifetimes.  My spouse and I have absolutely no use for 529 plans, as we are close to FIRE now anyway, and have no children.... but this may cause me to consider opening up a 529 in each of our names.  The tricky part will be, estimating how much we should invest right now, to try to hit the "35K" number at the end of the "15 year" duration that the funds must remain in the 529 plan! Heh.

That provision allows a rollover from a 529 plan instead of a regular Roth IRA contribution. It's not an additional thing. You won't benefit from opening up a 529 account for yourself just to do this. It's designed for parents who saved a bit more than they needed for college. They can then use $6,500 of that money each year to jumpstart their kid's Roth IRA once they get a job, up to a maximum of $35k over the kid's lifetime.

[rantk81]

https://www.forbes.com/sites/kristinmckenna/2022/12/20/secure-act-20-to-bring-sweeping-changes-to-retirement-rules/

The one that caught my eye is being able to roll over 35K from a 529 to a Roth IRA without a tax penalty.  Could be an additional way for a couple to get 70K more (35K each) into Roth over their lifetimes.  My spouse and I have absolutely no use for 529 plans, as we are close to FIRE now anyway, and have no children.... but this may cause me to consider opening up a 529 in each of our names.  The tricky part will be, estimating how much we should invest right now, to try to hit the "35K" number at the end of the "15 year" duration that the funds must remain in the 529 plan! Heh.

That provision allows a rollover from a 529 plan instead of a regular Roth IRA contribution. It's not an additional thing. You won't benefit from opening up a 529 account for yourself just to do this. It's designed for parents who saved a bit more than they needed for college. They can then use $6,500 of that money each year to jumpstart their kid's Roth IRA once they get a job, up to a maximum of $35k over the kid's lifetime.

Aaaah thank you for that additional information. Sounds like this won't be of any use to us then :(

[Fomerly known as something]

https://www.forbes.com/sites/kristinmckenna/2022/12/20/secure-act-20-to-bring-sweeping-changes-to-retirement-rules/

The one that caught my eye is being able to roll over 35K from a 529 to a Roth IRA without a tax penalty.  Could be an additional way for a couple to get 70K more (35K each) into Roth over their lifetimes.  My spouse and I have absolutely no use for 529 plans, as we are close to FIRE now anyway, and have no children.... but this may cause me to consider opening up a 529 in each of our names.  The tricky part will be, estimating how much we should invest right now, to try to hit the "35K" number at the end of the "15 year" duration that the funds must remain in the 529 plan! Heh.

That provision allows a rollover from a 529 plan instead of a regular Roth IRA contribution. It's not an additional thing. You won't benefit from opening up a 529 account for yourself just to do this. It's designed for parents who saved a bit more than they needed for college. They can then use $6,500 of that money each year to jumpstart their kid's Roth IRA once they get a job, up to a maximum of $35k over the kid's lifetime.

Aaaah thank you for that additional information. Sounds like this won't be of any use to us then :(

There is nothing that says kids.  I wonder if it could be used to fund a ROTH once there is no income.  (So first few years post fire)

[seattlecyclone]

No. The rollover is strictly limited to the amount you were allowed to contribute to a Roth IRA that year but didn't contribute any other way. No work income, no 529 -> Roth IRA rollover.

[secondcor521]

It's considered a qualified 529 distribution, right?  I.e., no taxes or penalties on the earnings portion?  I believe that's what I read but would appreciate confirmation.

[seattlecyclone]

It's considered a qualified 529 distribution, right?  I.e., no taxes or penalties on the earnings portion?  I believe that's what I read but would appreciate confirmation.

Correct. This rollover distribution is not included in income, and the 10% extra tax only applies to the part included in income.

[secondcor521]

It's considered a qualified 529 distribution, right?  I.e., no taxes or penalties on the earnings portion?  I believe that's what I read but would appreciate confirmation.

Correct. This rollover distribution is not included in income, and the 10% extra tax only applies to the part included in income.

Thanks!

[lifeisshort123]

Nothing too interesting in SECURE 2.0.  Financial advisors will be pleased, but not too much for mustachians to enjoy.

Great to see the over 50 cap increased, but as many of us know, that’s too late for meaningful compounding.  Would have loved to see an extra 5k for the below 50 or so added as well.

Savers credit remains highly limited in its benefits.

Also CTC was not included, which, despite my having some issues with it, would have preferred to see more than is currently there.

[nouseforausername]

No. The rollover is strictly limited to the amount you were allowed to contribute to a Roth IRA that year but didn't contribute any other way. No work income, no 529 -> Roth IRA rollover.

This is so well explained. Thanks! Your posts are always great.

Theoretically, if Parent / 529 Creator had a parttime job earning taxable income above the contribution limit 15 years post 529 creation, this would allow the 529 to be drawn from to fund the yearly Roth contribution limit? This is exceedingly narrow, but if that works, it would be nice to have Roth $ be funded through a tax advantaged source that was *growing*(?) tax free?

I might  have that completely wrong, and a hybrid 529-HSA like creation this is not.

[rantk81]

I found a news article that is hosting a link to the full text of the budget bill:

https://thehill.com/policy/finance/3781758-read-the-full-4155-page-1-7-trillion-government-funding-bill-released-by-congress/

(I tried to find the bill directly on house.gov, but couldn't easily find it there...)

One thing I was curious to check on, is how the "Employer 401k matching Roth Contributions" were supposed to work.  That seems to be explained starting on about page 2370 of the PDF under "SEC. 604. OPTIONAL TREATMENT OF EMPLOYER MATCHING OR NONELECTIVE CONTRIBUTIONS AS ROTH CONTRIBUTIONS."

From what I've read, it looks like if you opt for receiving the match as "Roth" contributions, there are some consequences:
1) The match contribution must be 100% vested immediately, and
2) The amount of the Roth match is taxable as income to the employee in the year that your employer contributes it to your 401k account.  (Bummer.)

[Catbert]

Another good synopsis of how the law will affect people: https://www.fidelity.com/learning-center/personal-finance/secure-act-2

The most interesting part for me as an, ah...older forum member is that at 70.5+ you can do a one-time 50K gift to a charitable remainder uni trust, charitable remainder annuity trust, or charitable gift annuity.  Now I'll need to figure out how that's different from my current donor advised fund and whether it's worth messing with it.

Of course, every time they delay RMD age, there's time for more Roth conversions.

[fuzzy math]

One thing I was curious to check on, is how the "Employer 401k matching Roth Contributions" were supposed to work.  That seems to be explained starting on about page 2370 of the PDF under "SEC. 604. OPTIONAL TREATMENT OF EMPLOYER MATCHING OR NONELECTIVE CONTRIBUTIONS AS ROTH CONTRIBUTIONS."

From what I've read, it looks like if you opt for receiving the match as "Roth" contributions, there are some consequences:
1) The match contribution must be 100% vested immediately, and
2) The amount of the Roth match is taxable as income to the employee in the year that your employer contributes it to your 401k account.  (Bummer.)

Assuming an employer adopts this, it completely kills the whole multi year vesting matching scheme!!! Cue lots of mustachians taking short term jobs and benefiting. I wonder if many employers will actually do this considering many have retention problems to begin with.