Roth 401(k) just got a lot more attractive

ONE Roth 401(k) is a solid choice for retirement savers, especially those who didn’t anticipate being in a lower tax bracket when they retire. Roth 401(k) works similarly to other retirement savings accounts – you put your money in it, invest it in a variety of stocks and bonds, and then withdraw it in retirement. The big difference, however, is that you put the money into a Roth account after it has been taxed, meaning your pocket money in retirement is not taxed. While Roth already has its advantages, the recently passed SAFETY Act 2.0 adds another reason to consider a Roth account – eliminating the required minimum distributions, leaving you with more rights More control over your money.

For more help with retirement savings or navigating recent changes from SAFETY Act 2.0as work with a financial advisor.

Basics of RMD

Required Minimum Distribution (RMD) introduced by the government to force retirees to start withdrawing money from their retirement accounts at a certain time. RMD used to start at 70, but after the first SAFETY Act was passed in 2019, that age increased to 72. SECURE Act 2.0, passed in 2022, raising it to 73 and will eventually increase the age to 75.

The RMD applies because, with most retirement accounts, the money is never taxed. The government, understandably, wants to cut it – and doesn’t want savers hoarding tax-free money for too long.

this is a table RMD tells you how much you have to withdraw each year based on your age. As you get older, the amount you have to withdraw gets bigger. Missing an RMD can lead to severe penalties, so if you’re saving in an account subject to an RMD, make sure you keep up with how much you need to withdraw each year.

Roth 401(k) RMD no longer available

Currently, RMD is required on most retirement savings accounts including 401(k) plans, Traditional IRA and Roth 401(k) plans. Notably absent from that list are Roth IRA. As noted above, a Roth plan filled with funds is taxed and withdrawals are not taxed. For this reason, RMD is not needed; Uncle Sam got his share, so you can keep it in your plan for as long as you like.

The story continues

However, Roth 401(k) plans currently follow the same RMD rules as traditional plans. However, starting in 2024, that won’t be the case anymore – meaning if you save money already taxed in a Roth 401(k), you can let it grow tax-free for as long as you like.

Key point

Currently, Roth 401(k) users are still subject to the required minimum distribution schedule, despite the fact that they have already paid taxes on the funds in their account. However, a new rule in the SECURITY Act 2.0 will change that, allowing Roth 401(k) savers to keep their growing amount tax-free for as long as they want.

Retirement planning tips

• A financial advisor can help you get the most out of your retirement savings plan. Finding a financial advisor is not difficult. SmartAsset of free tools connects you with up to three vetted financial advisors serving your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.

• If your company offers a suitable employermake sure you take advantage of it – otherwise, you’re actually skipping free money, which no one wants to do.

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