legislative update

In this week's podcast we return for 2023 with a lot to share.  We will start off with the latest legislative news and that is the SECURE Act 2.0 where Congress made it so that we can save more for retirement.  Here are some of the provisions in this new law.

 

 

Auto Enrollment and Portability

This legislation requires new 401(k) plans (as well as 401(b) plans) to automatically enroll employees in the company plan and start them off at a 3% contribution rate. This means that you will not have to opt in, but rather your retirement savings would start right away. This provision would take effect in 2025. It would also make it so that if you have a small balance in your account when you change jobs to have the custodian manage it for you. This makes it easier for you and less tempting to cash out.

Student Loan Retirement Match

So many people who have significant student loans aren't able to save for retirement early on, because their debt is too high. Before this law was passed if you chose not to make contributions to your company plan because you couldn't afford it, you didn't get a company match because you didn't contribute anything for them to match.

SECURE Act 2.0 allows companies to make a "matching contribution" to your retirement plan commensurate with your payments of your student loans. For example, if your company matches 50 cents on the dollar for contributions to your 401(k), now for every dollar you pay on your student loans would allow your company to put 50 cents into your retirement account.

529 Convertibility

In the past if you didn't use up all the money in your 529 college savings plan you had to contribute that to another person for them to use. So, if you had one child and they didn't go to college they wouldn't get to use the money you set aside. Now that will no longer be the case. Under the SECURE Act 2.0 up to $35,000 can be contributed to a Roth IRA subject to the maximum annual contribution and is treated as a contribution to the Roth IRA.

RMDs

Required Minimum Distributions are amounts that retirees need to take out of their retirement accounts so that the IRS can tax the money that they have waited years, even decades to tax while it was sitting in your IRA, 401(k) or another plan. Prior to the SECURE Act of 2020 the age where you had to start taking withdrawals whether you wanted to or not was 70.5. When the 2020 law took place that moved the age up to 72 and in SECURE Act 2.0 it gradually moves the age up to 75.

• Born in 1950 or earlier: RMD begins at age 72
• Born between 1951-1959: RMD begins at age 73
• Born in 1960 or later: RMD begins at age 75 

Also starting in 2024 RMDs will not be required for Roth accounts any longer.

Qualified Charitable Distributions (QCDs)

A QCD is a distribution from your IRA to a charity whereby you can meet your RMD requirement, but not pay taxes on the amount donated. For example, if you were to give $100,000 of your RMD to a qualified charity, you would not have to pay taxes on that money. This could save you a significant amount of income tax, because if you were to take the RMD into your own bank account you would owe income tax on that amount. Assume you were in the 22% tax bracket that means you save $22,000 by doing a QCD instead of taking the money into your own hands.

Starting in 2023 the $100,000 limit for QCDs will be indexed to inflation, so the amount you can give will go up every year. While this isn't something everyone worries about, it's great for those who do.

Increase in Catch Up Contributions

You may be aware that once you are age 50 you can add additional funds to your 401(k) or IRA accounts so that you can save more money and "catch up" for lost time by saving more when likely you are earning more.

Starting on January 1, 2025 if you are 60 through 63 you can make a catch-up contribution up to $10,000 to your workplace plan. The current law for 2023 is $7,500 into those accounts. The one caveat is that if you make more than $145,000 in the year prior, your catch-up contributions will need to be made to a Roth account as opposed to a traditional account. Hopefully this will prompt more companies to offer Roth accounts.

For IRAs, you can currently make a $1,000 catch up contribution if you are age 50 or over, but in 2024 that will be indexed to inflation, so it will likely go up every year.

Roth Matching

Going forward employers will be able to make matching contributions to Roth accounts. In prior years you could only get a matching contribution on contributions to a traditional plan. The funds that are matched would be taxable, but future growth would be tax free.

Disclaimer -  All content provided here is for informational purposes only and should not be considered tax, legal or financial advice.  Everyone's situation is different, so if you would like to speak about your particular situation please contact us at www.redbarnfinancial.com at smoran@redbarnfinancial.com or by calling 615-619-6919 

Featured guest: 

• Jeff Wensing, Ohio Education Association Vice President
  • A high school math teacher from Parma, Ohio, prior to his election as OEA Vice President in Spring 2019, Jeff Wensing served as the President of the Parma Education Association and as the President of the North Eastern Ohio Education Association. One of Jeff’s accomplishments was organizing members and the community to elect a new local Board of Education majority in 2017. This successful undertaking highlights his skill set by coordinating with local mayors, city council members, other unions, and the candidates themselves. Jeff has a history of listening to members prior to implementing decisions, communicating thoughtfully throughout the process, and engaging all stakeholders with full transparency.

In this episode:

"I want to be clear that classroom teachers aren't against tests. We've invented testing, and testing drives instruction, and these [formative assessments] are the tests that mean something, that were given to students in real time and drive our instruction; We can differentiate based on our students needs - not standardized tests, where you get the results in the summer and you have no way to react to the results of those tests."

• 1:25 - House Bill 67's original intent to waive state and federally required tests this school year
• 2:15 - The problems with standardized testing requirements this year
• 3:15 - Reworking HB 67 in wake of announcement that federal waivers would not be offered and how the new bill offers graduation requirement relief
• 4:05 - Amendment in HB 67 creating a new path to graduation and provisions exempting schools from having to administer American History exams as well as requiring the the Ohio Department of Education to seek a waiver from federal accountability and reporting requirements
• 4:45 - The emergency clause in the Senate version of HB 67
• 5:45 - "Teachers aren't against tests...We test all the time." Teacher-Based Teams, Professional Learning Communities, and formative assessments to guide instruction
• 7:45 - State report cards and House Bill 200, which would replace A-F grades for school districts and buildings with terms like "exceeds expectations or meets expectations"
• 8:15 - "We're happy with the direction that it's going; we're not fully supportive of it at this time."
• 8:40 - Areas for improvement in HB 200: An opportunity dashboard and removing the Value Added component

• "I think it's fair when you're evaluating students that they know how they're going to be evaluated and rated, and I think that's fair for teachers, too, and the Value Added system is some mysterious system that hardly anybody, if anybody, can understand."

• 10:00 - The failures of the A-F report card system: "It's a blame and shame game"
• 11:40 - Senate Bill 1, creating financial literacy requirements for graduation, sounds great on its surface, but is an unfunded mandate that would create hardships in smaller and less wealthy districts, especially
• 13:00 - The fight to fairly and fully fund all of Ohio's schools by working to include House Bill 1 (the Fair School Funding Plan) into House Bill 110, the state budget
• 14:00 - Issues with proposed restrictions on how student success and wellness funds money can be spent that are currently in HB 110
• 15:00 - The importance of cultural competency training and trauma informed care
• 16:15 - Including health and wellness funding in the Fair School Funding Plan
• 17:00 - Hopes for finally fixing Ohio's broken school funding system this year

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• Keep up to date on the legislation affecting Ohio public schools and educators with OEA's Legislative Watch

About us:

• The Ohio Education Association represents more than 120,000 teachers, faculty members and support professionals who work in Ohio’s schools, colleges, and universities to help improve public education and the lives of Ohio’s children. OEA members provide professional services to benefit students, schools, and the public in virtually every position needed to run Ohio’s schools.
• Education Matters host Katie Olmsted serves as Media Relations Consultant for the Ohio Education Association. She joined OEA in May, 2020, after a ten-year career as a television reporter, anchor, and producer. Katie comes from a family of educators and is passionate about telling educators' stories and advocating for Ohio's students. 

This episode was recorded March 17, 2021.