How the Secure Act 2.0 Might Affect Your Railroad Retirement

Transcript:

Learn the new rules that might affect your Railroad Retirement.

Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about a piece of legislation that was passed at the end of last year by the Congress, and the effects that it's going to have on building a great railroad retirement. All right. So it's the Secure Act 2.0. Obviously, there was a Secure Act 1.0, so this kind of builds on it, talking about the changes that they made to it.

So I picked out... The whole document's 4,000 pages, but obviously, I'm not reading 4,000 pages. So I went through what a lot of other commentators have wrote about it, and kind of boiled it all down to two things that I've picked out that will probably affect most of you are one is the Roth IRAs, and I'll start with that.

So the Roth IRAs, they have a catch-up provision right now, so you can do up to $6,500 a year in a Roth. And if you're over 50, you can do an additional $1,000 in the catch-up. But what they're going to do in I believe 2024 is they're going to index that to inflation. So they'll start moving that in increments of 100 instead of that static $1,000. It might be 1,100, 1,200, 1,300 as inflation goes on. So that's an improvement. All right? Additionally, the next one is no more RMDs inside the Roth. Actually, that's the 401ks, not the IRAs, because there's no RMDs inside the Roth IRA. So if you have a Roth 401k, there's no RMDs, right? RMDs just for those who aren't familiar are required minimum distributions. That's the point where the government wants their money, but you say, "Hey John, IRA pay taxes on the Roth."

I know that. They just want to get them out of the 401ks, the money out of the 401ks. I don't know why, but that's what they want to do. All right? Another thing is the employer match now inside the Roth 401k. So they added some language towards that. So that's a good opportunity now to do something in the future to kind of go deep dive into the Roth 401k options as a good way to build up your retirement.

And then finally, the Roth conversions have expanded the opportunity. So once again, RMDs, Roth conversion, taking that money from your tax deferred accounts, your IRAs, and then moving it into a Roth tax free account. So you have to pay the tax on it, and then you move it into the Roth. Now, when it comes to the RMD part of it, at 72 currently, government says you've got to start taking money out because we haven't taxed here yet.

But now they moved that age up to 73, starting next year I believe will be at 73, you won't have to take the Roth. And then later it's going to actually move, I believe in 2033, it's going to move up to the age of 75. So they extend that runway before you're forced to take that money out. So what they're really saying is, "Hey, take the money out. We're giving you a chance here before we claim it," and I'd rather pay taxes on my terms than on their terms. So you really got to have a Roth conversion strategy as you're going into retirement, especially those railroads, the 16 and 30. I mean, you might have a runway now of 15 years to slowly take that money out before you're forced to take it out on the return. So that Roth conversion strategy, I would probably say out of all these things, that's probably the best one there, is the movement of the RMDs out to 73 and then 75. So really got to have a Roth conversion strategy.

And then the other one here was kind of interesting. Now the other one is we're going to learn more about it as the months to come, we'll get more guidelines. Because what happens with a lot of these congressional bills is they pass it and then they hand it off to the bureaucracy and say, "Okay, you guys figure out the rules on it." So what they're saying is those with 529 plans, that's the college savings plan you get anything that grows in there, grows tax free. And then when you take it out, it's not taxed as long as you're using it for education. And I actually believe it's now into secondary education, high school education also for some schools, but mostly it's used for colleges.

So now you can take the unused funds. So let's say your child maybe doesn't go to college or maybe decides, doesn't use all the money in the 529. So you have unused funds. You can move those funds into a Roth IRA for that child, for that beneficiary, whoever the beneficiary is you can move in. Now obviously you say, "Well, I'll just stick the money in right before college and then we'll move it out, that type of thing. Has to be in there 15 years or longer. And like I said, these are the current rules, 15 years or longer, and the last five years are ineligible, right? So it's that whole idea of just putting money in at the end, they can't allow. And then currently the maximum right now is $35,000 that you can do that there. But currently, if you just take the money out of a 529 and don't use it for education, there is a 10% penalty. So this is a nice way to empty out those 529 s and maybe help the beneficiary out, whoever that is, kickstart them into life or whatever you want to do with the 529.

So those are the two things that I got out of the Secure Act 2.0. Constantly reviewing it. Maybe we'll come up with some other strategies that people have picked up on, especially as the new rules and regulations come out, there's some opportunities there. So every time laws are passed, the unintended consequences.

So I hope you found this video helpful. Reach out to me if you have any questions, especially the Roth conversion strategy. You got to go through that go. Go through my boarding [inaudible 00:06:12] retirement process if you're at or near retirement. Very, very helpful to understand what the retirement looks like for you. Please subscribe to the YouTube channel. It's growing great. Click on the notification bell to get the latest video. And until next time, everyone, please stay safe, stay on track, and take care. So long everybody. Bye.

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