SECURE Act 2.0: Elimination of RMDs for Employer-Sponsored Roth Accounts.

SECURE Act 2.0 eliminates the RMD rules for employer-sponsored Roth accounts for tax years after 2023. Under current law, a Roth IRA is not subject to the RMD rules affecting traditional IRAs. However, employer-sponsored Roth accounts [401(k), 403(b), 457(b) plans, etc.] are subject to those rules during the account owner’s lifetime (though distributions are tax-free).

Current law makes rollovers from employer-sponsored Roths to Roth IRAs very attractive as a means of avoiding RMD rules. While distributions are not taxed, money is removed from a tax-free growth environment into a taxable one. Who wouldn’t make that rollover?

Elimination of the RMD rules for employer-sponsored plan accounts should encourage employees to leave their Roth account in the employer plan after retirement. Employees will still have to consider other factors, such as plan performance, investment options, etc., in their rollover decision making, but the specter of RMDs will no longer be among them.

Note that the rule takes effect in 2024. If you are a participant in an employer-sponsored Roth plan and are at least age 72, you must take your RMD for 2023. After 2023, you will no longer be subject to RMDs.

Are you considering a rollover from an employer sponsored plan to a traditional or Roth IRA and not sure whether you’re making the correct move? Give me a call. I can help.