Intro: Hi, I'm Ed Slott, and I'm Jeff Levine.
And we are two guys who just love to talk about retirement and taxes.
Look, our mission is simple to educate you, the savers, so that you can make
better decisions because better decisions on the whole lead to better outcomes.
And here's how we're going to do that.
Each week, Jeff and I will debate the pros and the cons of a particular retirement
strategy or topic with the goal helping you keep more of your hard-earned money.
Yeah, but we won't know which side of the debate we're taking until we flip a
coin winner of the coin flip gets to pick which side of the debate they want to
argue, and both of us will have to argue in favor of our respective positions,
whether we agree with them or not.
At the end of each debate, there's going to be one clear winner you, a more
informed saver who can hopefully apply the merits of each side of the debate
to your own personal situation to decide what's best for you and your family.
So here we go.
Welcome to the Great Retirement Debate.
Jeffrey Levine: All right.
Welcome back to the Great Retirement Debate.
Ed, good to be with you again today.
Ed Slott: Yep.
We're back now on part two of Secure 2.0, that new tax law.
Last version we did Part one, our Deal or No Deal on the RMD required minimum
distribution provisions a lot there.
Now, today we're going to switch to the Roth provisions, Roth IRAs and Roth 401ks.
Jeffrey Levine: You know that old song, that kid song, like
99 bottles of Beer on the Wall?
I kind of feel like we're running through like 99 provisions and almost is 99
provisions in this, uh, in this bill.
All right, so we're gonna do Roth provisions today.
Yes.
Ed Slott: Yes.
And we're going to follow suit.
We flipped the coin last time and I picked no deal.
Which was easier for me on those RMD provisions and you had a tough
time, uh, defending some of that.
So I'll stick with my no deal, uh, because it may be tougher for
me on, on these Roth provisions, especially since I love everything
about Roth IRAs cause I like tax free.
So why don't....
Jeffrey Levine: You know what you are Ed?
You are a Rothaphile, I just realized that.
Ed Slott: Yeah.
Okay.
, Jeffrey Levine: You're you're a Rothaphile.
Ed Slott: Uh, yeah.
Whatever's tax free a file is what I am.
Keep more of your hard-earned money.
So let's start with the most recognizable actually has to do with RMDs.
Where we left off last time in Roth 401Ks.
Roth IRAs have never had required minimum distributions during your lifetime.
That's all I'm talking about.
Not beneficiaries, but when Roth 401ks came out, uh, for some reason, maybe
it was an unintended consequence.
They did have lifetime RMDs for those people.
Had Roth plans in their workplace plan like a Roth 401k, and that
seemed to be a problem because they weren't treated the same.
Now, uh, they will be treated the same starting next year, 2024.
Why would I say there's no deal there?
Uh, I wouldn't, I don't, I don't have anything on that one.
I don't see anything negative.
I think it's uh, that provision is great that, uh, they finally got around to it.
You'll just have to wait till next year.
If I had anything negative, uh, say no deal.
Uh, most people in plans probably weren't subject to RMDs anyway, even
when they were past the age if they were still working, because lots of
companies have these still working exceptions where you can delay RMDs
in a company plan, not an IRA if you're still working for that company.
So, other than that, that's my only no deal part, that it's not as big a deal.
Jeffrey Levine: Well, I think it's a pretty big deal because the fact of the
matter is if you have money in a tax-free account, Ed, you know, you just said it.
You love anything tax free.
Ed Slott: That's right.
Jeffrey Levine: So why would you take money from something that's tax free
and move it to anything else unless you needed to spend those dollars.
So the fact is that now individuals who have their hard-earned money
in a 401k, but the Roth side of the 401k won't be forced to do that.
They'll be able to continue to let that money compound for their entire
lifetimes, 100% tax and penalty free.
That means more for later in life when they really need it.
That means more for spouses when they inherit that dollar, those
dollars, that means more for beneficiaries if they get it.
So all in all, this is a, a pretty big deal.
And you know what, I'll say it's a big deal cuz it actually,
in general, the Secure Act 2.0 does nothing for simplification.
It just complicates matters absurdly.
But this is one kind of corner of the universe where they actually did
make things a little bit simpler.
Now, if you have a Roth account, it has no required minimum distribution before,
as you said, we had to keep track.
Is it a Roth IRA?
Is it a Roth 401k, or 403b etc.
Now, I don't care.
Your account is a Roth, and again, this is beginning next year in 2024.
But I don't care now, it's just you don't have required minimum distributions.
So anytime we can get any sort of simplification, Ed,
it's gotta be a big deal.
Ed Slott: I agree.
I had a tough call on saying no deal on that.
Uh, but like I said, some people may not, it may not affect as many people
as you think because they, uh, may have had that still working exception.
But the other thing, I'll have to take one other point on your side, some people
may have wanted to keep, you know, uh, their money in a Roth 401k in the past.
To, to avoid RMDs and the plans you would roll out to a Roth IRA,
but for certain reasons, creditor protection, uh, investment of whatever.
There could have been reasons you wanted to keep it in the 401k.
Now you can in the Roth 401k and not be subject to lifetime RMDs for that money.
All right, next provision deal or no deal?
The 529 to Roth IRA rollovers, so I'm calling no deal on that
even though I like the provision.
I'll give you the basics of the provision for years people built up, uh, subs uh,
some people built up substantial accounts in their 529 education funding accounts,
and now they have too much in there.
Maybe their child didn't go to school or they got a scholarship
or something like that, and the money can't be used for education.
If it's not used for education, uh, the earnings could be subject to
tax and even a 10% penalty if it's not used for qualified education.
This provision, if you just look at the headline, it sounded great, and all the
advisors were jumping all over and say, wow, 529s to Roth, tax free rollovers.
I have clients with 200,000, 300,000.
In fact, uh, you had a piece in the New York Times and in one
that re that, uh, we're going to link if we can to, that pro...
that article linked to one of your articles talking about these,
uh, these large accounts, right?
Jeffrey Levine: Yeah, that's right.
The, the so-called Dynasty 529 plan is what, what I, what I refer to it as.
It just simply refers to the ability of basically to accumulate obscene
amounts of, of money inside 529 plans, and then change your beneficiaries,
for potentially generations in order to continue to use these dollars.
So yeah, I appreciate the plug , Ed, and uh, I owe you one, I guess.
So your case of brandy is on the way.
Ed Slott: Yeah, yeah.
Uh, meanwhile that's the deal part, but that's all a lot of advisors and even the
public saw, they only saw the headlines.
Uh, well now I may have to burst a few bubbles.
If you're an advisor out there or a consumer and saying, wow,
this is great, I have 200,000.
Um, it'll never be used for education.
I, I, I can't see how.
Wow.
I could roll it to a Roth and, uh, tax free and now build it up in a
Roth or with all the Roth rules.
No.
There are severe limitations.
It's not all it was cracked up to be.
Uh, and I'll tell you number one, it has to go to the beneficiaries.
Roth IRA, this rollover.
All right, not a big deal.
Like you said, change beneficiaries.
That's no big deal.
Not available till 2024.
Not a big deal.
You can wait.
Here are the big deal limitations.
You must to qualify for the rollover from the 529 to the Roth.
The account must, the 529 must have been in existence for 15 years.
That could throw off a lot of people, even if you met that.
It's like each hurdle, each time you get past a hurdle, there's another
one that may be tougher to hit.
So let's say you got past that, then any contributions that were made in
the last five years don't qualify.
All right.
Maybe you got past that one.
And now the big one where people, where everybody was licking their chops.
Wow, look at all this money.
I can get into a roth.
No, there's a limitation.
A $35,000 lifetime, $35,000 lifetime limitation.
So you say, all right, I can move 35,000.
No, you can't.
The , the, uh, 35,000 can only be moved in increments of whatever the
annual contribution is for that year.
Now, this is not available till 24.
We don't know what the annual IRA or Roth IRA contribution limit will
be next year, but, For arguement say now it's 6,500 without the catch up.
Let's say, uh, it went up to 7,000 just to make the math easy.
7,000.
It would take five years to get that 35,000 out.
But even then, if you say, all right, I'll wait the five years and use
the 35,000, it only works if the beneficiary would otherwise have
qualified for his or her own IRA or Roth IRA contribution by having,
uh, wages or self-employment income.
So as we get down the ladder of all these, uh, of all these limitations, you're
going to see, yes, it can help with some small balances and the ideas good, or
to chip away at some larger balances.
Uh, if there's, uh, any way to expand it, it might be that it's,
we believe it's per beneficiary.
Jeffrey Levine: That's right.
Yeah.
And I think it's a pretty big deal, Ed, because you know, right now
retirement accounts are kind of like, they're on their own island.
They basically can only transfer money from retirement
account to retirement account.
And you know, there are just things that happen.
And, and by the way, not only can they only transfer money from
retirement account, retirement account, but they can only take
money from other retirement accounts.
You know, you can't decide like, Ooh, my HSA, I wanna move it in there.
There is a one-time ability to go from your IRA to an HSA, but it's very limited.
Probably most people on here have never even heard of it, something called a
qualified HSA funding distribution.
That's an ability, once in a lifetime to take one year's worth of contributions,
uh, from your IRA and move it into an HSA.
But in, in general, we're talking about isolating money
in their own respective buckets.
This is a, a change to that philosophy.
And you know, a lot of times Congress is, you know, they're like
a little kid going to the beach.
They don't just run in, they dip their toe in the water and
they see how it goes first.
And, uh, this might be Congress starting to dip its toe in the
water and saying, you know what?
We're gonna give people, uh, the ability to redirect or change the
reason, the purpose that they were saving for tax preference money.
And right now there are a number of reasons, right?
It could be.
For, uh, you have health, you have education, you have retirement.
Right now, they're largely siloed in their own buckets.
Maybe this is the beginning of, uh, of a, of a, of a new trend
for Congress to just allow almost universal style tax preferenced
savings accounts, which a lot of people have been clamoring for, for years.
Ed Slott: Yeah, the 35,000 limit though is a kind of a killer and you may even
be the blame for it, if I had to blame somebody probably that times article.
Jeffrey Levine: Thank you.
Thank you.
I appreciate all the hate mail I'm gonna get now.
Ed.
Thank you.
Yes.
Ed Slott: Oh, probably Congress was reading that.
It was a full page, you know, top, uh, front page in the New
York Times business section.
I could see Congress in there, what?
Uh, no, no, no.
We're not doing that.
Jeffrey Levine: Well, that's, uh, Hey, great.
My mailbox is gonna be, uh, stocked full of..
Ed Slott: Well, you know what?
Maybe they read your stuff.
I don't know.
Jeffrey Levine: Alright, well hopefully they read somebody's stuff, something
because they don't read the bill.
That's for sure.
Ed Slott: Yeah.
Right, right, right.
Uh, about 350 pages of the 4,000 page bill.
All right, so there, there's another provision on the Roth.
Uh, one more, the plan this is the 401k catchup contributions.
Can only go in certain instances to a Roth 401k.
This is a special provision in secure 2.0 for high income people,
and the provision says, the catch up contribution, if your wages from the
company you're working for are in excess of 145,000, you must, uh, you can,
the catch up must go to the Roth 401k.
I like the idea of a catchup, uh, you know, loading up a Roth 401k, but it
must go because you're high income.
And, and what if the plan doesn't have a, a Roth 401k?
Then you have no catch up, so it takes some of your choices away and some
higher income people might want to keep it in the 401, the tax deferred side.
So, uh, I call no deal on that.
The idea is good, but, uh, to me personally, I like to see more
people load up on Roth 401ks.
But what's, say you on the big deal?
Jeffrey Levine: Ed, you know, I'm gonna have to take this, uh, to say it's a, it's
a big deal, but for a negative reason.
Precisely, uh, for some of the reasons you stated and, and I'd start with
the fact that this only applies to individuals who have wages of more
than $145,000 in the previous year.
So we're talking about people with relatively high incomes, at least compared
to, you know, the American public at large and American taxpayers at large.
And if you have high income and you think you might be in a lower tax
bracket later on, maybe when you retire.
You may be better off going into the pre-tax account now and then
converting maybe in a gap year in between when you retire and when you
start taking social security and start taking required minimum distributions.
But now you can't do that.
So I think it's a big deal there.
And perhaps the even bigger deal is that not every plan has a Roth option today.
And if there's one person who makes more than $145,000, uh, $45,000 in wages in the
previous year, and they are 50 or above.
So basically like one eligible person to make a catch up, who can't make
because of the fact that there is no Roth option in the plan, no one in the plan
gets to make a catch up contribution.
That's high income, low income.
Roth, not Roth.
Uh, so there's one, and I got one other big deal for you, Ed.
Um, and that is, I think it'll get fixed.
I, I do think it'll get fixed before, but as it stands now, Congress made a mistake.
Portion.
They accidentally deleted the section of the law that allows for
catch up contributions, period.
So, although I think it'd be fixed eventually, or IRS will just ignore
it, uh, it's a kind of a big deal that Congress, you know, they they, they,
they put this thing together between the Senate and the House version so quickly
that they ended up in a scenario where they accidentally deleted the entire
portion of the catch up contribution law.
Ed Slott: Yeah.
It's called cut and paste.
Pretty much, except they forgot to paste.
Jeffrey Levine: They, I was, I was gonna say, there's too much
cutting and not enough pasting here.
Yeah, indeed.
Ed Slott: All right, there's a couple other miscellaneous things,
uh, just so we cover the, the Roth provisions or as many as we can.
New beginning of SEP and simple Roth IRAs and even matching contributions
to Roth, uh, 401ks, which none of these were allowed before.
And, and they're allowed now.
Uh, what's the downside of that?
Well, I think it'll gonna take a while to get into the system because the law
was enacted December 29th, so SEP and Simple Roth IRAs became effective a few
days later, even if you wanted to do it.
I don't think any custodians going to have the paperwork, the
administrative headaches of, of getting these up and running.
Eventually it'll smooth out, but for right now, it might be a rocky road on those.
Jeffrey Levine: Yeah, I, I think this is also a big deal and I've gotta argue that.
So I have to think that and, and, uh, you know that right now, It
is not everybody has the ability to get money into a Roth early on.
For instance, you know, simple IRA owners, they've had no ability to
get money into a Roth account for the first two years of their plan because
they are stuck in the simple for two years, you can't move it anywhere else.
So the fact that you're able to do this now, this is a, you
know, that's a pretty big deal.
The fact that you are able to get your employer to put money directly
into the Roth, now, yes, today, practically speaking, it's not there,
but it'll be there soon enough.
And that eliminates a step.
And as we know, Ed, any time there are steps involved in something,
anytime it, it takes, if it takes three steps to do something, instead
of two, fewer people will do it even if it's, it's in their best interest.
So re reducing friction here.
You know, one of the greatest inventions for retirement security
over the last, uh, you know, last 25, 30 years has been auto enrollment.
Why?
Not because it allows people to get into a plan where they weren't before,
but because it removes friction, it takes away a step for them to do it.
So now the fact that people will be able to have money go right into a Roth
from their employer means more of them will probably get that money in there.
And that could be a very good thing for a lot of people down the road.
Big deal.
Ed Slott: Maybe it's a start of something.
They're opening up the spigots for the Roth.
Why?
Because they need revenue.
And that's where all these Roth provisions are in secure 2.0 in
the revenue provisions because it brings in money up front.
So I say take advantage.
I'm a big Roth fan.
There're just a couple of bumps in the road and hopefully we'll
get over a lot of these things, including that one on the catch up.
But I, I don't even really address that cause you know they're gonna fix that.
Jeffrey Levine: Yeah.
I think at some point they will.
I agree.
And, and Ed, I, I think, you know, we agree on the fact that.
This is, you know, the Roth is something that the government loves
because it brings in money today.
And so, while normally I'm hesitant to say you can trust the government to
keep its word about anything because the laws get changed so quickly and one
party comes in and changes the rules, the other one may, this is one thing
that everybody really likes because it looks really good on a budget report
when you bring in those dollars today.
Ed Slott: That's right.
Short-term thinking, take advantage of it for long-term planning.
Jeffrey Levine: That's right.
Well, so we agree on that.
And Ed, one thing, the other, you know, one other thing we always agree on is
the fact that while, uh, there are two sides to every argument, to every coin.
Your life and your decisions are too important to leave up to a coin flip, and
that's why one thing that we always agree on is making sure that you talk through
any big decision with a knowledgeable financial advisor or tax professional
so that you can weigh the pros and the cons of different decisions against
your specific goals and your objectives.
It's too big of a deal not to take advantage of that option.
And so if you'd like to continue the discussion with Ed and I, we'd
love to hear what you think of the Secure Act 2.0 Roth provisions.
Are they a big deal or are they not a big deal?
Which one do you think will have the greatest impact on you and your family?
You can reach out to us, uh, Ed on Twitter @TheSlottReport that's
@TheSlottReport or myself, @CPAPlanner.
Again, that's @CPAPlanner, Ed and I look forward to hearing your thoughts and Ed, I
certainly look forward to our next debate.
Ed Slott: Oh yeah, me too.
And there may even be more to come on secure 2.0 when we find out what
Congress really meant or what I, what we, what IRS thinks Congress really meant.
Jeffrey Levine: Indeed.
We're gonna wait for those regulations.
And Ed, I think one last thing that you can, I you and I can agree on
is the fact that we could be glad we don't have to be the ones writing the
regulations for a hundred new rules.
Ed Slott: Oh yeah.
Can you imagine?
But we'll give them, what you get here is the debate in English
on what we think they mean.
Jeffrey Levine: Fair enough.
And we'll give you some more debate next time here on the Great Retirement Debate.
See you soon.
Outro: Jeffrey Levine is Chief Planning Officer for Buckingham Wealth Partners.
This podcast is for informational and educational purposes only, and should
not be construed as specific investment accounting, legal or tax advice.
Certain information mentioned may be based on third party information,
which may become outdated or otherwise superseded without notice.
Third party information is deemed to be reliable, but it's accuracy and
completeness cannot be guaranteed.
The topic discussed in corresponding arguments are those of the speakers
and may not accurately reflect those of Buckingham Wealth partners.