The Massive Retirement Account Changes That Impact You! #617

like caval cascading arrangement of changes. So we're gonna talk about this like when they're going to be implemented, how they're going to be implemented past, but it may not actually be implemented for years, even a decade, uh from now. Some started beginning of this year someone until seven's We thought about calling this episode working Towards a more Secure retirement because it's the secure two point oh secure active point. Yeah, but we feel like we're burying the topic a little

bit because this truly is, it's really important. It actually so it kind of makes me think of instruction manuals. A lot of folks may have gotten some electronics or like a new toy. In my case, I got a trigger grill for Christmas and it comes with with like this fat instruction manual, And essentially what we're doing is we're sitting down and we are reading that instruction manual, and we're making sure that you know how to properly

run your retirement accounts. A lot of times you can kind of throw that instruction manual to the side and think, I just kind of figure this out, but we think this is truly important. We're the kind of nerds who sit down and uh read page after page and make sure that that you are going to be able to

say for retirement in correct way. And the truth is there there are a lot of changes, some of which might not impact you, but we're gonna kind of highlight the most important ones, the ones that we think are going to impact the biggest swath of our listeners, and a lot of them will. I mean we're talking, we're gonna talk a lot about RATH accounts, but also accounts. There are new retirement accounts out there for the self employed. There's quite an array of changes that took place, and

sure we're going to cover all of those today. Before we get to that, I wanted to mention one other account, just to money the waters a little more, and that is donor advice funds. And we've talked about those. We talked about those in November when we talked about giving, and we think giving your money away is really important.

But if you're the kind of money nerd who wants to suck money aside and give it in future years, a donor avice fund can can help you do that, and it can actually help you grow the dollars that you want to give. And we've talked about how Daffy is a really cool website daffy dot org to do that. D a f f y and listener Jared apparently heard us talk about a couple of years ago and he opened up an account with Daffy. But he he emailed

us Matt and this is so cool. I thought this was awesome because he won a ten thousand dollar prize that Daffy was giving away dollars so that he could then give that money away, so that he has extra ammunition now in his giving arsenal, all because he participated in this, in this Daffy giveaway to give away the charity is and nonprofits of his choice of this designation. And on top of that, on top of that, Daffy has uh this way that you can allow other people

to give your money away too. So he gave some of his money away that he are that he won in this ship stakes to his co workers. He said, he listen, you've got a hunter Bucks. You've got a hunter Bucks. You've got a hunter Bucks. Where do you want it to go to? And they were able to decide which nonprofits to donate that money too. So that's kind of fun, Like, that's a really cool way to

incorporate people around you into the giving mindset too. But just how that was fun to highlight love donor advised funds, love Daffy and the fact that Jared won ten thousand bucks because he so that's a lot of money, a lot of money, and real quick, it's worth mentioning that donor advice funds they're not just for those out there who are completely crushing it. It's not for the ultra rich.

And so there are ways that you clump your donations so that way you get the tax credit for those the tax deduction for those donations as opposed to just taking the standard deduction. And so this truly is something for for everyone out there who is giving them money. Should we should ride about that in an upcoming How the Money newsletter, which, by the way, if you're not signed up how to Money dot Com slash newsletter, and

Matt just one other cool thing about Daffy. I love that you can donate with a credit card and not pay any fees. That's a cool way to like. Obviously, we don't want you to go in debt to give, but if you're using a credit card strategically to meet a sign up bonus or something like that, then I think that's really I love that Daffy allows users the ability to do that. And if you're wondering which credit card has the best sign up bonuses, how to money

dot com slash credit cards. That's right, man. Let's mention the beer we're having on this episode. It's an Imperial Strawberry White Ale by Tennessee Brewerks. We'll give our thoughts on it at the end of the episode, but let's get onto the subject in hand. We are talking about the massive retirement account changes that impact you. And we've always said that the basics of personal finance aren't terribly difficult to comprehend. They're not impossible to wrap your mind around,

and in fact, most people understand them quite clearly. Even my three year old she don't understand some of the basics right. The general principles are fairly easy to understand, like don't spend more than you make like that. It doesn't take a rocket scientist really understand that. But incentives change everything and might even get you to do something that you're not terribly keen on doing. It makes me think of Matt You remember the TV show Fear Factor?

I do. Okay, I never watched it. Okay, Well, I remember people used to eat really weird stuff. They used to lie down in glass coffins with spiders crawling over them. Ystian. Yeah, you had to overcome your fears. You had to do

crazy stuff. And the fact is most of us wouldn't choose to do any of those stunts if it weren't connected to the possibility of winning a lot of money, right, But people were like, listen, okay, I'm gonna win thousands of dollars or potentially million dollars for letting spiders crawl over me. All right, I guess I'm in right. So then incentive kind of changes someone's mindset and their decision making.

You know what, I'm going to go on that show and I'm gonna do that crazy stunt because I might make some money at the end. Of the day. And and that's true. For like, if you asked me to get into a coffin of spiders or something, I would say no, Like I wouldn't do it unless there was like a million bucks at the end of the rainbow. But these are the kind of things like that. There are things in this bill that are going to change the incentives for how and where you invest in the future.

We're gonna discuss that. We're talking about some of our favorite changes in this bill. We're gonna talk about how you should react to these changes based on your situation in today's episode. That's right, man, When the rules of the game have changed, we need to adjust our behavior accordingly. And at the end of last year, the Consolidated Appropriations Act of three that was as signed into law, all of it. Would you write every single page it's I

will I will say. Folks were only talking about how you know how big it was, But like it's definitely the margin, the margins are pretty are pretty fat, and it's like there's definitely double spacing going on. It's kind of like what you used to do in high school just to get that page paper up the length exactly. Yeah, but you know, Luckily, we're we're mostly concerned with just a portion of it, the Secure Act two point oh, which is it's all about saving for retirement. But even

just that portion, it's nearly four pages long. But yeah, lucky for you, we are into this kind of stuff. So let's let's parse out what you need to pay attention to. And one of the changes that will affect a ton of folks, most folks out there, is that the bill al allows you to withdraw one tho dollars for quote unquote family and personal emergency expenses from retirement accounts like a like a four win K or an

IRA without incurring a ten percent penalty. There are other stipulations as well, other rules, but here's the thing, We're not even gonna cover those because we don't want you touching your retirement accounts. That is what your emergency fund

is for. So if you hear folks that work, if you hear you know, water cooler talk being discussed, how hey you can talk tap a thousand bucks of that that pesky money that keeps getting siphon out of your paycheck, that is something to bring it back into your own know how to think about that is not money? That we want you touching, even though Congress has has left a pretty broad I mean literally it's just family and

personal emergency expenses. So it seems like a very wide swath of explanations that you could give for tapping that money. That is not money that we want you tapping. That is money that we want you to leave in your accounts. That way it can continue to grow into even more are future dollars for your future self. Yeah, it's it's one of those things where it seems like a benefit,

it seems like a nice thing. It's like, hey, yeah, if you need this money for any reason, go ahead, tap it, pull it out, and guess what, We're not going to charge you that penalty on top. And it seems like great. Not makes this money more accessible, But that's exactly what we don't want is this money to be more accessible. This is money we want you to

lock away for your future. And there are some extreme circumstances where it makes sense to take money out of a retirement account, but that's what emergency savings is for, and that's what building up that de fund and having more money on hand in your savings account is for. We we don't want you to have to ever pull out money from a retirement account. That's not the goal.

But if it comes down to, like you selling a kidney or or tapping kid you know, well, go ahead and kidney, go into the thousand bucks, hang on to the kidney. Yeah, I mean exactly that, And that's what that's what I think Congress is trying to say people kidneys if they don't, they don't want a black market for that. They don't want you on Craigslist selling your body parts. But it's one of those things where I get why they're going in this direction, and but how

the money listeners like that. Hopefully this this is going to apply to you don't care about that part of it exactly, But let's talk about a bunch of other stuff, Matt that does is going to impact a lot of our listeners, and automatic enrollment into employee retirement plans is one of them. It's one of the major changes from this bill, and it's a money psychology move that's going to impact millions of folks positively who aren't currently saving

for their own retirement. Again, though that might not be a whole lot of our listeners, most of our of the how the money community is putting money in a workplace retirement account if they have access. I hope so. Yeah, But starting five, a bunch of employers who have at least ten employees. Churches and nonprofits are exempt from this rule. They're now required, though, to automatically opt in employees by stashing away at least three percent and up to ten percent.

Like if you had like an employer who was like, no, we want and investing so much, they could automatically enroll you at ten percent of your your paycheck into that workplace retirement account. That's what we would do. Yeah, that's probably we would force it default and make you change it exactly. No, no no, no, you started in present and

you go up from there. That's right. Yeah, we're not gonna messing with that pitally three percent, and if you want to take it, you know, take the burden in your own hand and go change that setting and move it back down to three, that's on you. Yeah, but but we know that that's probably you know, not many of the folks listening right now, they're on it. They're saving for their own retirement. But let's say you mosey

on down the road to a new job. Your employer is now going to be automatically in rolling you into their four one K plan or four or three V plan or whatever. And also employers are now able to offer incentives for you to sign up and start contributing to your four one K, which I thought was cool. Maybe like a free water bottle or a small gift card which shouldn't be what you need to get signed up a free pizzas sort of like the old school credit card signed up, right, except for this is a

much better thing they're signing up for. But now this is a legal approach employers can take to encourage employees to invest, which which I think is cool. Let's keep talking about the different incentives that are being dangled in front of us. Savers who have a wrath four oh win K they can now choose to have their match go into their wraths as well. Oh now, this is especially advantageous for everyone out there who is just starting out in the career and who is likely to earn

substantially more money down the road. You want to pay those taxes now, not in future years decades down the road, when you are likely going to be earning more money where you'll be in a higher tax bracket. Before, if your employer offered a ROTH four one K option, you could definitely stock that money away into the ROTH four o K, but then the match that your employer offered that would go into a traditional four O one K, which obviously is it's not the worst thing in the world.

You're still getting the free money, but for a lot of folks, that makes sense to get all that money, including the match in the form of RATH funds if you could, and now you can, and so this is definitely one that you want to keep on your radar. You'll probably hear about this one at work, but if not, make sure to ask around and see when that might

be available for you. Yeah, and then again, a lot of these things this was past at the very end of last year, and if you reach out to your HR department right now, they might be like, sorry, just just got back from a holiday trip. I have no idea what you're talking about. It's gonna take a while. Well, first off, some of these things aren't supposed to be implemented for years down the road. Like we talked about that employer match thing that starts in so it doesn't

start this year, they don't even start next year. Some of these other things that the start date is different, but when you reach out to HR, it might take the time to implement some of these things. So just understand that and be cognizant of that before you start jumping down the throat right and start apparently on the door demanding that they make those changes. Now want that? I heard my Joe talking about it on the body.

What's your problem to get with it? Well? So, yeah, and again, this is a four thousand page bill and it's gonna take it's gonna take a while for the implementation to to happen. But let's talk about one other thing that's really interesting on the four oh one k front, and a lot of organizations are are going to be

implementing this as well. Something else on that match front is that's starting in four next year, if you're paying down your student loans and you're therefore unable to invest in your workplace retirement account because so much of your income is going to pay off that that college debt, you're not going to be eligible for the match that

you previously wouldn't have qualified for. So that match from your employer is going to go into a retirement account, so she'll still be investing even though you're not actually investing. So yeah, even if you can't afford to put any your paycheck towards like even three right towards that four ohn K, because the student loan bill is so demanding, your employer is going to be able to invest on

your behalf with the match. So I think that's kind of cool because there are people in that sort of scenario, Matt, and they want to be investing. But student loans obviously a massive burden for a whole lot of people. So and and student loan forgiveness still up in the air. But I think this is a really interesting change. Is going to help a lot of a lot of people who otherwise wouldn't be investing anything at least be investing

something thanks to their employer. And this new law change exactly, it's basically treating the student loan payments as if you were contributing that money into your four o K. Your employer is viewing it like, essentially, you're giving getting the same benefit that somebody who's investing their money. You would also receive that benefit, but you are paying down debt instead. And how's this going to play out in the specifics

in actuality. I don't know, but we have time to kind of see how because this this one again doesn't start until next year. But I'm sure there's gonna be a way that you report your loan payments to your employer so they can then you know, make that match happen. But um, yeah, what does it look like on the ground. Not sure yet exactly. Yeah, so we've kind of talked about some matches from your employer. There's some news on

the essentially matches from the government as well. There are now expanded tax credits available a match from the federal government on at least a portion of the money that you invest in. This is for folks who have an adjusted gross income of less than seventy three tho dollars. Interestingly, this one doesn't start until start dates of all this stuff. It's just kind of it's kind of annoying that kind

of all over this one. This one starts now, this one starts, but the the Savers tax credit will a few years from now it will become the Savers Match, And so there's some semantic change they're going on. But that's gonna allow more individuals, it's gonna allow more families who aren't making bank to get an additional government match so's they're no longer cutting your tax bill. It will now actually be the government literally making a matching deposit

to a traditional IRA for you. Uh. And it's going to be up to one thousand dollars for individuals, it's gonna be two thousand dollars for married folks, and the specific amounts and it's actually based on how much you are able to contribute to that ira a yourself. And man, this is just another one of those incentives for young folks who are just at the beginning of their career and for folks who perpetually just make less. It's gonna allow them to find a way to start investing even

if they're not making a ton of money. Now. I I kind of like that the government, even though I hate that is so complicated. I hate that all the laws governing these different tax advantage work sponsored retirement accounts, individual tax advantage retirement accounts, it can all be so

stinking confusing. I hate that part of it, But I do like that the government is essentially pushing some of the responsibility on us as individuals, right like we're gonna be We're gonna be your buddy and help you out. We're gonna come alongside you, exactly. I love like. I love that as opposed to like Social Security, where it's just six percent of your paycheckto automatically getting siphoned off

and you don't even think about that money. You're not thinking about how that money is gonna necessarily grow for you. There is an active step that's taking place here, as individuals are setting that money aside there, like you said, they're kind of coming alongside you. We're buddies, We're partnering in this together. Because this is exactly how like when my kids get old enough to purchase a car, Like, cars are really expensive, but that doesn't mean I'm going

to just buy a car for my kid. I'm gonna say, hey, cars are expensive, you should start saving now. And for every dollar you set aside for that car, guess what that like, I'm gonna pitch in. I'm gonna meet you, I'm gonna come alongside you. This is something that we can do together. I love that some of the Yeah, just more the responsibility is being placed on us as individuals. I want to see more of that and less dependence on the government. And by then used rivians are going

to cost all that much. Oh my gosh. But but will they still carry the charge? That's you know, I need a new battery at that point. But yeah, no, I I like this one too. I think it's a good one. And again it starts in seven. But it's gonna help a lot of people. It's gonna incentivize a lot of people, to say, for retirement, who otherwise wouldn't because it's like I'm getting a percent match on my dollars. Depending on your income level, that might be the case

for you. All right, but let's talk about in just a second one of my favorite changes to this, and it's very nuanced. There, so much that goes into how much better five plans have become thanks to the passage of the Secure Act two point oh. We'll get to our thoughts on that. We'll talk about the intricacies and how it can actually benefit your child's financial future in a much bigger way than used to be possible. We

get to that right after this. All right, man, let's keep on trucking, and specifically we're talking about five nine accounts. This is the aspects of the Secure Act that we are Secure Act two point oh got got to mention that we're most excited about I mean mostly because you and I both have You've got three kids, I got four kids. These are all kids who may or may not go to college, and the may not part of

it is why these changes are so important. Exactly, Yeah, this is the This is actually in section of the secure actor, your favorite part. You read it with with bated breath. I will say the sections they start at like I think it started at one on one, so it's not like, you know, they make it seem way bigger, like a much bigger deal than it is. So really this is just section six um And when you say it that way actually sounds super boring. So we're not

gonna do that. But we've always said that five nine accounts they can be a solid place to say for your child's future, but not until you've invested significantly for your own retirement, because there are a lot more ways to pay for college than there are to pay for retirement. But the bill you know, that passed up the tail end of last year, it has made five twenty nine

plans significantly more attractive. You can now roll funds from a five nine account into a roth ira, a penalty free, and uh, honestly, that's that's the biggest reason why we were why we just didn't like five account so that much. You were essentially siloing that money into a five account only to be used for higher education, and if you wanted to take that money out, you're gonna get hit

with a ten percent penalty. Makes me think of one of those home renovation shows Matt and how you might find a house with good bones and then you clean it up and you you put in a new kitchen and you're like, man, this thing is really attractive. And that's exactly what happened to five nine counts. They had some good bones, there were there were some good there was for a lot of people. Five twenty nine accounts made sense, but they're also they also didn't make sense

for a whole super people. But now those good bones been brought to life and five accounts make more sense for a lot of folks. Bad analogy out it, Maybe it works. Yeah, we just found a way to blow out a wall in the five account and all of a sudden, now we've linked the dining and the entertainment space. All of a sudden, this is gonna be my modern day family needs. So maybe it's more like that Thai Penning can show back in the day where they added on like a whole wing to the house and it's like,

now now this has moved my bus. It's like okay, yeah, and that's kind of what happened, my fun because it made this account just doubly effective. It changed your ability for how you use but you know, wild if I's went an account like it's still is not sexier than your roth ira A. The added flexibility you know that they now have they allow you to not just pay for a private school right or college from this account, but it can help your child start to invest for

their own future in a meaningful way. It allows them to start, you know, building up their own wealth to say, for their own retirement, which is sort of a nice side effect and a nice additional benefit that comes with these changes. And if you and I we've been kind of giddy on this one. We've been talking about this change because a lot of money nerds certainly have tease

to this one the most over the past. Well because I'm most excited about this because I think that this impacts a whole lot of how to money listeners who want to get the next generation of personal finance nerds started out on the right path. And we're not the

only one with kids. No, we're not the only ones with kids, and we're not the only ones who are like, I don't know if I makes sense for me, because you know, they're not sure if their kids are gonna go to college, or even if they do, there's scholarship opportunities, and so they just it's it's hard to know whether or not to prioritize that account, and these changes make it easier to stock money away into one of those accounts, even if you're not sure about what the particulars of

college are going to look like for your Kiddoh, but I also want to Yeah, like you said that, your own retirement accounts still take priority. Here here's how we're thinking about it. If you're already doing a fantastic job saving for your own future and you want to help your kids get started off on the right foot for there's two, then this provision is going to help you

do just that. But we want to make sure that you're maxing a ROTH, you're contributing a significant amount of your workplace retirement account before you start to help your child a crew of retirement dollars. And again, now with these changes, that is what account can do for them. It can turn into retirement dollars, which is really cool because before it was like use it or lose it, pay the don'tee if it doesn't get spent on college. And now there's another uh, use case scenario for these

five nine funds. But it still doesn't mean that they're more important than saving for your own retirement first, that's right. The purpose of these changes is to make sure that essentially they're alleviating stress that you might have for putting money into a five twenty nine account that may not

be used for higher education. And there are a lot of people who already have money stocked into a five twenty nine account and their their their kids are graduated, and I don't know what to do with this money. And so now there's like something to do with this money, which is great. Hopefully they didn't pull it out last year and percent penalty. But let's talk about the stipulations associated with these changes and how you might be able to take full advantage um. A couple of things to know.

First of all, you can only transfer thirty dollars total into a raw fire a for your kids from the five twenty nine account with their name on it over the years. And that's for each kid, right each and so the kid has to be listed as the beneficiary. You own the account, but the money can be transferred out of that account into a roth ira in their name. And so, for instance, let's say you have a hundred thousand dollars in one of those five accounts over two decades,

that's something you've saved up. Well, know that this means that basically only about a third of that money would ever be eligible for wrath transfers. The rest would need to be spent for education or you pull that out and get hit with that timbercent penalty. And again, this is what five nine accounts were designed for. They were meant for higher education. This is probably fine. This is probably the major reason why you likely open the account, or that you plan on opening one in the future.

That's still a good reason and honestly the primary reason to use the five pan It's like that, it's just a backup, right, It's sort of like going skydiving and counting on using your second shoot, like like your emergency parachute, like don't they have. I think they have to U two parachutes. I probably want three if I went. But it's basically saying, hey, I'm gonna jump out of this plane and I'm looking forward to using that second second para shotes like no, no, no, that's not really what

it was intended for. You can do that, but hopefully you are using it for its primary purpose first. But now you just know that you've got that secondary justin camps. I kind of like though the secondary shoot on this one. I think it's for people who are really with it. It's a very nice secondary shoe. Yeah, and they want their kids to be millionaires, let's say by the time

they reach retirementas without having to do anything on their own. Granted, I want to teach my kids how to do the right things and how to invest in their future and to be and to care about investing from a personal standpoint, but if you want to get them started on the right path, this account you don't even have to think about. You can now think about it purely as a retirement account if you wanted to for your kids future, although I think you still want to think about it primarily

as an education funding tool. But let's talk about I've got mixed feelings about saving for your kids retirement because like it's one thing to save on. Yeah, yeah, exactly. I think funding different experiences or extracurriculars are just different

things that you can do together as a family. But I'm still super just I'm mixed essentially on whether or not I feel comfortable setting aside retirement dollars for my kids because I feel like it just does something mentally you almost don't want to tell them about it, like

if you are doing it, except that you're talking. We're talking about it right now on a podcast that everyone turn this podcast off right now if you're listening, they're gonna go dig in dy account that has to do with kids accounts or five nine, and like, all right, what did what did Mr Joel? What did Daddy do?

What did Joel do? What did I do? Like, I guess I'm more interested in the fact that you can then transfer that account into your own name and note me knowing that I can then with that five nine, with me being named as the beneficiary, can then transfer that into a roth eyra that is also in my name. That is something that you can also do it for me. That feels more like the backstop. That's the to me,

that's the secondary. Shoot. Yeah, well, interestingly enough on that front, like we don't really have the details on how it works when you change beneficiaries. That's one of those things that that hasn't been completely spelled out. And so I'm actually gonna talk about this right now. Let's talk about

seasoning the account. If you rename the ben a fishery, that might mean that you have to season the account again, which could make it really hard for for the person who becomes the new beneficiary to actually get that money

or at least prolonging the timeline. But there's this fifteen year rule that's massively important to understand if you want to utilize the new abilities of plans, And basically, this plan needs to be open for at least fifteen years in order to reach the age of eligibility to where you're allowed to roll over some of those funds into a roth. And that makes me that that makes I would say, opening that five plan early a really critical step.

So even if you're you're not sure that you'll want the fund to retirement account like a wroth for your kid, or that you're gonna have enough money to contribute like you'd like to. You might say like, yeah, this is pie in the sky, but I don't make enough money to even consider a maneuver like this. Well, that might be true right now, but it might not always be true.

Your income mike skyrocket in the coming years, and you might say you might be a ball I wish I had done something at least started the ball rolling on that. And so we would say it's worth opening up a account in each of your kiddo's names, even just with the bare minimum. Let's say it's twenty five a minimum

to open the account. Do that and get that clock taking your your income and your goals might change, like we said, And and it would be nice to have the option to contribute more into funnel money into your child's rath down the road. Let's say you don't use that money for education, and then you can start to jump start their retirement with it. But there's just more opportunity if you open the account in their first year

or two of life. So I would say, like, you have a kid, you get their social Security number, open up a five account now, boom, even if it's with ten twenty bucks, and yeah, get that clock taking, because that is one of these one of these major sticking

points in this new bill exactly. And if you think you might be transferring that money again into your own name and naming yourself as the beneficiary, maybe it wouldn't hurt to open a five nine account and your own name and even your partner's name as well, to be able to potentially again we don't know the specifics and how this is all going to play out, but to potentially spread that money out, I mean you might have the assuming it stays at dude, I mean, that's a

total of thirteen thousand dollars that you might be able to essentially funnel back into your own roth iras well. We've had a fount for my wife for a couple of years now because she's in graduates, she's already got We're funny that you've got both of those and in fifteen years, even if even if the clock does reset and the seasoning of the account is beneficiary specific than just like having opened your your kids five and accounts that clock would have been taking fifteen years ago as well.

But not only do you need a season the account, you have to season the money that goes into the account as well. This is the five year rules, So there's a fifteen year rule. In the five year uld, the account has to been open for more than fifteen years, but tell us about the money. It has to have been in that account for at least five years. And so that means that you you can't roll over five twenty nine dollars that you've stalked away within the most

recent five years. So say if you're fourteen years in and you still just got that twenty five dollars hanging out in an account and then you decide to max out your contribution right before you're fifteen, well, those funds will need to then season four an additional five years before being able to be eligible for RATH conversions. And

so yeah, keep that in mind as well. Essentially, just like if I feel we might be getting into the weeks here, but just like if you're doing a backdoor rath I r A, that money has to season for five years. I'm assuming this is exactly where they got this information from, so that it mirrors that backdoor wrath.

I can't imagine that that there's gonna be you know, millions of folks out there who are gonna need to be able to maximize this new rule, you know, funnel a full thirty five dollars into a wrath for their child. But if that's your goal, you're gonna need to plan accordingly, which for most folks this means regular contributions in those early years in order to grow that balance. Yeah, and I think that is where some folks might get hung up.

They might be so excited about the if they're like talking, if they care about generational wealth building, and they say, unlike Matt and Joel, and I am funding my five nine accounts with more bigger now because of this law change, because there's more ability for me to pass that money down to my kids in an awesome retirement account for their future, and of course not telling them about it.

But it's it's it's one of those things where some people might get so excited about this and creating this generational wealth opportunity that they might fail, or at least not to the same degree, invest for their own future or like you said, Matt too, even invest in things that help grow your family dynamic and and trips that might pay off from a cultural standpoint or from just a knowledge standpoint. I think those things are massively important.

And if you're funding a five plan but you're skipping out on those other things, that's not I wouldn't say that smart. I wouldn't say that is creating a well rounded family and well rounded kids. So yeah, food and analogy.

It makes me think that you're serving up the perfect amount of vegetables, protein, dairy, whatever for for each meal, but you're like, you're not adding any seasoning to it at all, and you're just like, well, no, no, these are the building blocks to uh healthy, fully balanced diet. Who cares about flavor well, flavor is really important. That's

what actually gets you to do the thing. And if you've lost sight as to why it is that you are funding these accounts, it's to and enrich the lives of you know, your of your kids in the future. It's important to keep that in mind as well. You don't want to lose sight. You don't want to focus so much on the long term that you lose sight of what's here right now, right in front of you.

You gotta have that both and approach for sure. And and one more thing that it's important to mention when it comes to the changes to five plans, in this Secure Act two point oh section, annual contribution limits still apply. And so those contribution limits they're going to go up over time. They just went up this year from six

thousand dollars last year to sixty. What you can stock away in in IRA at this point, I can't predict what they're going to be in let's say nine, But let's just say the annual limit is still at six, even though it won't be at that point. The account in question has been open for at least five fifteen years, Matt, like you just discussed, with at least sixty dollars of those having been stocked away at least five years ago.

You can then roll over that's sixty from the five nine account into a roth I array that is in your kiddo's name, and you can do the same thing in the following years. To one. Thing you you can't do is roll over sixty five hundred and then contribute sixty additional dollars like the traditional way. In the normal way, you can't say you can't fund thirteen dollars into a ROTH in one year, half from the half from just other earned income. The total annual max of six still applies.

You can do half and a half. You could do three thousand, two hundred and fifty dollars from as a rollover and then the same amount as a traditional contribution. But yeah, you can't double up those limits. Those contribution limits still apply. And okay, so that's a lot of new information on how five plans have changed. Hopefully we

didn't bore you with too many details. But how parents can best take advantage of this for their kids, This gets a bit complicated and the reality, honestly, it's it's that most folks will have something to do now with those unused fights one and nine funds that that don't involve a penalty. That is the great news here. But if you are inclined to take advantage of this, if you want to prime the pump for your child's future retirement, then we want to make sure that you do it properly,

that you're thinking about it the right way. Again, even though five nine plans they're they're way cooler, they're way more flexible than they were, that still doesn't mean that it takes priority over the other retirement accounts that you have access to. But if you're willing, if you're able to do both more power to you. And that being said, we've covered a lot of details. If you have questions, this is an excellent time for us to bring this up.

Submit a question to how the Money dot Com forward slash ask. You can send us a voice memo if you have a particular situation. If you have if you've come across a nuance of the law that you want us to talk about, you can ask a question so that you're just like, Man, I in my specifics, should I be contributing to a five nine plan for my kids? Like we love to throw out a few of your particulars.

We love to tackle it. Yeah. Or if you've got a frugal or cheap and you're like, is it cheap to think that I will designate this money for my kids for their college only, but I am not link to give it to them within the retirement account. That's something I'm personally wrestling with as we speak into your question. Man. But all right, we've we've got more changes to retirement accounts that we need to discuss, including new RATH four owen K rules, and we'll get to all that right

after this. All right, let's keep going. Let's keep talking about retirement account changes thanks to the new Secure Act two point oh, which was past basically the very end of last year. I can't wait for the upgrade, the Secure Act two point two point one update. Yeah, well, that's the thing is, like, we do need clarification on a lot of the changes that are that are happening. Hopefully we'll get those in the coming weeks and months, and we will share as new information comes along. But

there's just a lot worth covering. In specifically, we wanted to dedicate a whole section of five plans because there's massive changes there, like we said, kind of like a new wing being added onto the house, and it's worth covering and discussing in depth how that impacts folks who are saving for the kids college, or folks who hadn't considered saving for their their kids college but who do

want to invest for their child's future. This now gives them another account to consider and that secondary Shoot, yeah, you can always, you can always. There's always money in the banana send exactly what I was thinking when you said that. And if any of you don't watch Arrested Development, go back and watch it tonight because it's one of the greatest shows on television. Or yeah on streaming. But now let's talk about some other changing elements of retirement accounts.

Thanks to what the Secure Act two point has brought about, and we've got a few more things we want to get to. Four own K hardship savings are now a reality, and so a good chunk of folks are not gonna be able to save for a rainy day inside of their workplace retirement account, whether it's their four or three B four oh one K, which whichever workplace retirement account they have access to, if they have access to one.

And the goal here is so that employers can basically help lower income workers out by allowing them to also qualify for the company match, but just on savings, at least until a certain point when the account achieves a sum of two thousand dollars, which is early close to our two thousand, four hundred and sixty seven dollar recommendation

of what folks should hapen an emergency fund. The right read the same report by the same economists that we got our number form exactly so to our listeners, they might see an hr email hit their inbox at some point this spring outlining their new ability to save for

a rainy day inside of their retirement account. And this is kind of this just isn't terribly exciting in our books, because yet saving that much money in a savings account is literally our first money gear, Like that's what we want people to do from the outset, when it's like, what's what'sh your My my first goal with money be get that much money set aside in the same mus

account that you have. So but if you've had trouble just getting to that point, this new provision it might do a bit of good helping more folks to get there, which which is going to be, let's be honest, a massive step for a whole lot of folks who are

living paycheck to paycheck. If you have that much money in savings, whether it's inside of this new hardship savings inside of a four one K or four or three B, this will probabably lead to a lot of folks who needed the most to achieve a greater level of financial security to get established lay that foundation. Yeah, this does

not apply though to all employees. There are some stipulations, the main one being that you can't take advantage of this if your income is over five thousand dollars which it kind of makes sense because high income earners, they should at least be able to find a little bit of wiggle room in their budget to be able to

fund that emergency fund without this additional boost. And because of that new option rule that we talked about earlier, if an employee doesn't opt out, they actually actually might be saving up money, uh, without having to do anything at all, because employers can also auto enroll employees into one of these emergency savings accounts and establish a contribution percentage of up to three on their behalf. So that's

kind of important to keep in mind. Uh. Something else, what happens when they reach that threshold, Well, then the employer could just either stop those contributions altogether, or they could deviate those dollars. They can fundel them towards the workplace retirement account instead. So know that that's an option that your employer now has the ability to do that

on your behalf. And we've talked about over the years, Matt, the different psychological things that money is so in our brain, and often we don't take the actions that we want to that we know are in our best interests. And so some of these automatic contributions from employers, not like that's just gonna help people do the right thing without having to think about it, without even choosing to do it. Some might say that's like nanny state, big brother or

something like that. But you can you can always change it, you know, as long as you still have the option, which you do. There's nothing wrong with a little notes. You go back in there the very next day and be like, psych, thanks for thanks for trying. I want to spend all the dollars that I that I that I make. I don't want to say anything for my future. You still have that choice. But let's talk about some other changes that The rm D pushback is another one

that happened in this bill. This one applies to fewer how the money listeners because we have a younger audience. But here's the scoot for individuals who turned seventy two. This might have ramplications for your parents. By the way, r m d s will be pushed back by one year compared to the current rules, and they're gonna begin at age seventy three. Age seventy three will continue to be the age at which rm ds need to be

taken for the next decade through two. Then beginning in twenty three, r m D s are gonna be pushed back even further to age seventy five. So for most of our listeners who are still decades from retirement, there's

still a long ways off. This means that you won't be forced to take money out of your four one K or traditional I array until you turn seventy five, that's right, which is good news, Like you have more choice over when you take those funds out, and nobody's telling you earlier on in your retirement years that you have to you have to grab those that money and pay the tax piper. You you can let it continue

to grow, that's right. Yeah, I mean, and with folks living longer and with a desire to continue to want to work at a job some somehow, maybe it's not maybe you're not making nearly as much as you used to make. But what that means is you often times don't need to take that money out of the account

and you can let it grow. But some other good news on this front though, is that RATH four ohwen K accounts, which by the way, there are favorite choice for most folks because most folks are going to be earning more money in the future, and tax rates are likely to go up to they're likely gonna go up after five. But if you have a RATH four W four oh one K account, this also means that you won't have any R and D s attached to them

starting in and moving forward either. So in our minds, this makes a ton of sense because RATH accounts, regardless, they are funded with after tax dollars, whether we're talking about roth iras or RATH four own case, but roth iras they already had no mandatory required minimum distributions and so now they're sister accounts, they won't have any forced

withdrawals associated with them either. It makes sense. I mean, more of the the language in this bill is pushing folks towards the expansion of what some writers have called like the rathification of retirement accounts. More accounts now have the option and to not only pay the taxes up front and let that money grow tax free, but also to avoid those R m D s. Yeah. One of the thing on the WRATH front too, is that it's

good news really for self employed folks out there. Starting this year, you're gonna be able to contribute to a WRATH simple IRA and a Wrath set IRA. Those accounts previously only allowed for pre tax contributions, but that changes in this year, and so it might take a minute for the brokerage company you work with to get everything up and running on their end, but look for that

option soon. And for again, given kind of where things stand from attack standpoint in this country, and depending on your income, depending on your goals, depending on you know, what you're likely income is going to be in the future. It's it's hard to give a blanket statement for every single person, but Rath Rath accounts makes sense for a lot of folks. And yeah, that the fact that Rath simples and Roth steps are going to be available now

starting this year is a good thing, that's right. But before we wrap this thing up, some additional news and information for our older listeners. Catch up contribution amounts are going up for folks who are in their early sixties, and that catch up amount is going to be indexed to inflation. What about the mustard amount? Such a nerd, no, sir, But what this means is that since it's going to be indexed inflation, is gonna gonna be essentially pegged to inflation.

That it means it's going to automatically change over the years. But for folks who are getting closer to retirement age and they haven't been able to sock as much as they'd like to away into the retirement accounts of the decades, they will now have a greater ability to put more into those accounts, at least for a few years, specifically between the ages of sixty and sixty three. And believe it or not, there's even more in the Secure Act

two point o that passed. Much of it is arcane and gets even more into the weeds than we've done on this episode. So we're going to um try to maintain listeners and not be just completely boring and uh and and tell you stuff that you don't care about. But for instance, you can now offer your cleaning person or your nanny a step by array. Let's say you're in that boat and you're like, you want to give them a retirement account. You're trying to steal your neighbors,

your friends. You're like, I offer retirement benefits. Right, Well, that's kind of interesting, but it's not necessarily applicable to a bunch of folks there as right. There also changes to able accounts for disabled folks, which which are going to be helpful, but those don't go into effect. Until that being said, we'll link to some of the best resources to help you understand the full scope of changes

that this law creates in the show notes. If you're like listen, I want to read like dozens and dozens and dozens of pages of arcane legislative language, then boom if that's your If that's your jam, will link to some of that stuff in the show notes so you

can dig into the details yourself. Well, we'll link to the actual omnibus bill and tell you what pages to start on if you want to read all four pages of the Secure Act, if you really want to dive into a dozen pairs of how the money stocks for the first listener that reads the entire bill, we want a book report in two weeks. Obviously, we would still like to see more simplicity, right, like when it comes to retirement accounts, they're still massively confusing to a slew

of folks. We we totally get that there's like an alphabet soup of different account names, the income limits and the slighting scales time periods like in different years that they're getting implemented all of these they put h they put up a bit of a wall for a lot

of folks who would otherwise be interested in investing. But still, even though it might feel like you're you're cramming, cramming for an exam, if you learn how these accounts work, if you use them to your advantage, we think that you're going to be able to change your financial future in a massive way. And of course we know that financial futures lead to your actual futures. And it's not just about money, it's about what you can then do

without money. These changes will quite literally allow you to make some serious changes to your life in the future. Yeah, we talked about at the very beginning of this episode, we talked about incentives and incentives drive us, like whether we know it or not, Like why do we get up and go to work every morning? It's it's typically not because we'd rather be there than sleeping in our bed or hanging out with our kids or or there

signific another like extrasophosmory. Yeah, it's it's for other reasons, right, And it's the incentives that matter. And so it's because we get health care and we will like maybe hopefully we like what we do, but it's because we we get a paycheck from that job, and incentives drive what we do every single day. And the incentive changes inside of this Secure Act two point oh which was passed in this omnious spending bill, are going to impact our

decisions moving forward. And so hopefully, yeah, you know a little bit of the lay of the land, some of the major changes that occurred in this in this bill, and how you can use so changes to your advantage in the future as you're saving investing in your building wealth. That's right. And again, if there is a part of the Secure Act that passed that you did not hear us talk about, or you want us to talk about, talk about it in a specific way, send us a question.

Go to how do money dot Com forward slash ask Joel. Speaking of incentive is one of the reasons that you and I that we come to work is that we're able to sip a craft beer while we record these episodes. So during this episode, enjoyed an Imperial Strawberry White ale. That's the only reason I showed up tonight for this beer. Uh.

It is like a nice little park, you know. The ability for us to I mean literally, we don't repeat beers, and so part of it is a mission to explore all the many different breweries and different awesome beers that are out there. This is why Tennessee brew Works out of Nashville in collaboration. I guess with Cascade Moon, I think they were a distiller. They used their their whiskey barrels.

But yeah, what your thoughts on this one? Yeah, so because they were in this beer was Asian and whiskey barrels. It was a little boozy. You had a little bit of strawberry all on that white ale base. So to me, this is crazy. This was unique and interesting. Like it was, it was different than any other beer have had, and I love a good beer agent and whiskey barrels. Like I'm hoping in Secure Act three point out they actually mandate all beers be Agian whiskey barrels, because that would

make my day. But I thought this one was was fun, It was different, and it wasn't necessarily one of my favorites, but it was also it was also really tasty. Did you not like the had like a Belgian aspect to it more so than I mean it's we should have known that it's a white ale, so it's like some of the spice Belgian white in white ales aren't. They're not always my favorite, although we had one recently from Sapernartists that was delicious that I love, but this one

has because it had fewer of those spies exactly. Yeah, yeah, but I I still I still really like yeah it definitely. It kind of had immediately you taste like the fruity floral action going on, but I obviously it had notes of strawberry, um, but it also had like a peachy mango sort of fruitiness going on, like a very kind of white, light colored fruit or or strawberry that it's like, yes, yes, it's like a strawberry that has maybe more white and green on it than actual deep red. Kind of had

some of that tartness going on, which I enjoyed. It was a way to balance out some of the deeper notes that you get when you ate something in some oak barrels. But I agree with you, any beer that has aged in oak just takes it up another notch. And I'm glad this is one that you and I could enjoy today, buddy, But that's gonna be it for this episode. This was. This was a little more of

an academic, nerdy, sit down textbook kind of episode. Uh. Often times we're talking maybe a little bit more about lifestyle, or we're talking about things in a slightly more fun manner, but this one was. This one deserves the seriousness. You know. This was like a stoic type of financial episode. And now you can look forward to Matt spinoff podcast where

he reads the Encyclopedia Britannica each and every week. Not gonna do it, but we hope that you did enjoy this episode though, and that you're able to glean a bunch of value out of it. If you liked it and you haven't left us of review, head over to Apple Podcasts or wherever you listen to your podcast. But Joel, that's gonna be it. It It takes two seconds, just five stars for this episode. It made me feel good until next time. Best Friends Out, Best Friends Out,