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IRS Updates 401k Rules

Kevin Nolte September 06, 2023

Recent IRS Updates

Back in March, we published a list of legislative changes the Secure Act 2.0 brought. The IRS has since released some clarifications that will impact savers. To see our previous article for more details on Secure Act 2.0, refer HERE.

401(k) Catch Up Contributions

One of the most significant new rules included in the legislation is the requirement for 401(k) catch up contributions for individuals earning $145,000 or more to be Roth contributions, disallowing the traditional 401(k) pre-tax option. Initially this rule was slated to take effect in the 2024 tax year. The IRS has now delayed implementation by two years, and it will not be effective until 2026. The full IRS news release can be found HERE.

Inherited IRA Distribution Rules

In 2020, the predecessor to Secure 2.0, the Secure Act, changed the distribution rules for inherited IRAs. Starting in 2020, the new distribution rule required many beneficiaries to take annual Required Minimum Distributions (RMDs) and empty the account in 10 years. Early interpretations of this rule were not clear, and many experts understood the requirement to solely be to empty the account within 10 years, with no RMDs. The IRS has since confirmed this interpretation is incorrect, and that RMDs are necessary. In July 2023, however, they announced that they would be waiving penalties for missed RMDs for the 2023 tax year, and would start enforcing the rule in 2024. Requirements and strategy surrounding the 10 year withdrawal rule remain complicated and fluid subject to further IRS clarification. For the most up to date interpretation of what these changes mean for you contact your advisor or the CCP Advanced Planning group. The full IRS Notice can be found HERE.

Kevin Nolte

disclosure

THIS COMMENTARY HAS BEEN PREPARED BY CLEARWATER CAPITAL PARTNERS. THE OPINIONS VOICED IN THIS MATERIAL ARE FOR GENERAL INFORMATION ONLY AND ARE NOT INTENDED TO PROVIDE OR BE CONSTRUED AS PROVIDING LEGAL, ACCOUNTING, OR SPECIFIC INVESTMENT ADVICE OR RECOMMENDATIONS FOR ANY INDIVIDUAL. ALL ECONOMIC DATA IS DERIVED FROM PUBLIC SOURCES BELIEVED TO BE RELIABLE. TO DETERMINE WHICH INVESTMENTS MAY BE APPROPRIATE FOR YOU, PLEASE CONSULT WITH US PRIOR TO INVESTING. INVESTING INVOLVES RISK WHICH MAY INCLUDE LOSS OF PRINCIPAL.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities, insurance products, or to adopt any investment strategy. The opinions expressed are as of the date of writing and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by Clearwater Capital Partners to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. S&P 500 is a registered trademark of Standard & Poor’s Financial Services, a division of S&P Global (“S&P”)  DOW JONES, DJ, DJIA and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings (“Dow Jones”). The two main risks related to fixed-income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments.

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