New Government Regulations Will Impact 401Ks and Employees

Announcer:
Hello, everyone. Welcome to The Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.

Casey Hiers:
Hello, and welcome. This is Casey Hiers, back at The Millionaire Dentist Podcast. In studio with co-host Jarrod Bridgeman.

Jarrod Bridgeman:
Casey, how are you today?

Casey Hiers:
I'm good. I'm not as well-dressed as you. You're in a full damn suit. What's going on?

Jarrod Bridgeman:
I woke up today and just felt being nifty. I wanted to really beautify myself.

Casey Hiers:
In junior high, we had Dress for Success Day.

Jarrod Bridgeman:
That's right.

Casey Hiers:
This was your Dress for Success Day.

Jarrod Bridgeman:
It was, it was. I felt like Little Richard getting ready. No one's more beautiful than me.

Casey Hiers:
Absolutely. You look more like a Southern Baptist preacher, but we won't get into that.

Jarrod Bridgeman:
Yeah. Kind of the same thing.

Casey Hiers:
Well, Jarrod, today we have a guest person on our podcast.

Jarrod Bridgeman:
It's his first time ever.

Casey Hiers:
Really?

Will Chrisman:
Yes, first time ever.

Casey Hiers:
Will Chrisman is with us today. He's part of the Four Quadrants Advisory team. Accredited wealth management advisor.

Will Chrisman:
Yes, sir.

Casey Hiers:
You are a CFP, which is a Certified Financial Planner candidate, which means you've been studying your ass off for a year.

Will Chrisman:
Yes, sir.

Casey Hiers:
And you're about to pass it, and just add more letters after your name.

Will Chrisman:
Gotta love the extra letters.

Casey Hiers:
Will, welcome to the podcast.

Will Chrisman:
Thanks so much. Thanks for having me on today.

Casey Hiers:
Jarrod, what the hell does he want to talk about?

Jarrod Bridgeman:
Will reached out to me and was like, "I've got a dinger of a topic here." It's about the Secure Act 2.0. From what I understand, that is something that will be coming to effect as of January 1st.
Will, can you walk us through a brief-

Casey Hiers:
Is it twice as good as the Secure Act 1.0?

Will Chrisman:
Oh, yeah. Definitely. Basically-

Jarrod Bridgeman:
Yeah. Go ahead and just give us a little rough overview of this.

Will Chrisman:
Yeah, absolutely. The Secure Act 2.0 was from the Biden Administration. It's basically just different ways for employers and employees to put more into retirement accounts. There's some different rules in there that are pretty interesting. Some of the rules have already taken effect, but we also have rules coming up in 2025 and 2026 that are set to be implemented.

Casey Hiers:
For our listener that might be a 36-year-old practice owner, they'll listen to this and go, "Great. I can get out ahead of this, I can save more money, and retire in my 50s." For the older people listening to this podcast who need to hurry up and catch up with retirement, you'll be able to touch on some strategy around that as well.

Will Chrisman:
Yeah, absolutely. Absolutely.

Jarrod Bridgeman:
With this whole thing, the initial idea is it's referred to as deferrals?

Will Chrisman:
Correct.

Jarrod Bridgeman:
Out of your income, out of your paychecks.

Will Chrisman:
Correct, yeah.

Jarrod Bridgeman:
What do the limits look like, the max limits for 401Ks look like for starting next year?

Will Chrisman:
Yeah, absolutely. Starting in 2025, if you're under 50-years-old, you'd be able to put in $23,500 into your 401K and defer it. If you're under 60 but over 50, you have a special catch up contribution of $7500 on top of that $23,500.

Casey Hiers:
Say the age again?

Will Chrisman:
If you're under 60 but over 50. That would make your total deferral up to $31,000.
Now the really exciting thing coming up in 2025 specifically is what they're calling a super catch-up provision. If you're over 60-years-old, and you can go up to 63-years-old, so from 60 to 63, you would be able to do this super catch up, which would be $11,250 additionally into the 401K. That would be your maximum deferral, if you are-

Jarrod Bridgeman:
That's 42,000, right?

Will Chrisman:
It would be $34,750.

Jarrod Bridgeman:
Oh, nevermind. My bad. That's why I'm not on that side of the team.

Casey Hiers:
You don't have all those letters after your name, Jarrod.

Jarrod Bridgeman:
I do not. I have zero letters.

Casey Hiers:
Say that again. You've got the under, you've got the catch-up, and the super catch-up. Which is new?

Will Chrisman:
Yes.

Casey Hiers:
When you first said that, I thought you were joking. Super catch up if you're 60, 61, 62, or 63, you can save how much in total?

Will Chrisman:
You'd be able to save $34,750 and defer that into your 401K.
Something that's brand new. They announced this actually on November 1st, so just this last Friday.

Jarrod Bridgeman:
This is hot off the presses.

Will Chrisman:
Yeah, this is pretty much hot off the press. The IRS just announced this. What you might need to do, and I'm not sure of the exact situation of our listeners, but you might need to amend your 401K plan to amend to allow the super catch-up provision. That's something to keep in mind, because all of our situations differ a little bit, so just keep that in mind.

Jarrod Bridgeman:
Again, this will be people in that age bracket of 60 to 63.

Will Chrisman:
Correct.

Jarrod Bridgeman:
Does this mean you would be turning 60 in 2025? Is that what that's-

Will Chrisman:
Correct, correct.

Jarrod Bridgeman:
Okay.

Will Chrisman:
Another good thing, I'm glad you brought that up, Jarrod. If you are 64-years-old, unfortunately you didn't miss out on the super catch-up provision for 401Ks. You still get the catch-up of 7500 as your elected deferral, which would make 31,000 being the maximum amount you can defer into the 401K. But you wouldn't get that additional about $3750 that the super catch-up allows.

Casey Hiers:
Will, how can you differentiate your employer plan to other plans?

Will Chrisman:
Yeah. Something that's really interesting that the Secure Act 2.0 put out. I believe they rolled this out in 2024. Say you have a hygienist that's pretty much right out of college. They're paying on a student loan, and that's been a massive issue in the United States over the past few years. What you can do now, if a student makes say a $2000 payment through the entire year of 2024-2025 moving forward, you can match that $2000 that they paid of their student loan now into the 401K. That provides a massive benefit for employees with student debt.

The cool part about it, it doesn't just apply to somebody coming right out of college. You could have a 40-year-old employee that's paying on a student loan, and maybe they're unable to put in funds to the 401K, but you can match them on what they're paying into their student loan.

Jarrod Bridgeman:
This would be completely different than the potential match, let's say your company provides a 5% match already. This would be another match outside of that?

Will Chrisman:
This actually wouldn't combine with the current match. If it was 5%, and say just for the sake of keeping my brain a little clear on this subject, say the match limit went up to $5000 of your 5%. If you paid $5000 of qualified student loans, you couldn't then match another $5000.

Jarrod Bridgeman:
Okay.

Will Chrisman:
It's important to note if you have this ability for one of your employees, it's available for all of your employees as well.

Jarrod Bridgeman:
Right. Will, normally we have, every year, we have a tax year wrap up with our good friend Steve Levy. These numbers increase a little bit each year. It sounds like this is a bigger jump than years past?

Will Chrisman:
It's about in line with what a typical jump is. Sometimes there might be a freeze of the limits increasing. But this is pretty well in line with what we've seen the past couple years.

Jarrod Bridgeman:
This one just adds some newer things to it.

Will Chrisman:
Exactly. Exactly. Some of these were already pre-planned when the Secure Act came out, it's just starting in 2025.

Jarrod Bridgeman:
It's like phase two, or whatever you want to call it?

Will Chrisman:
Yeah, whatever year they're rolling it out.

Jarrod Bridgeman:
Are people able to be automatically enrolled into these things? Is there an automatic enrollment?

Will Chrisman:
Yeah, absolutely. Something that's a little bit different starting in 2025 is what they're calling an automatic enrollment into 401K plans. This is different than what we've seen in the past. If I was starting employment, let's say at Four Quadrants, and we have our 401K at work. I would be automatically enrolled into the 401K when I was eligible. What that means is, if the match is at 3% at work, I am pre-enrolled at 3%.

Jarrod Bridgeman:
Okay. Normally, the case has normally been you opt in when it becomes available to you. Now let's say you get automatically enrolled, and maybe your hygienist or somebody may not have the funds needed at that time. Can you opt out of the 401K?

Will Chrisman:
Yeah, absolutely. What that rule means is the employee has to explicitly opt out of the plan in order to not contribute to that plan. It's important to not too, Jarrod, that this is plans that started after December 2022, and also new companies in business for less than three years, and employers with less than 10 employees are excluded from the automatic withdrawal.

Jarrod Bridgeman:
Okay. So the smaller, brand newer companies.

Will Chrisman:
Exactly.

Jarrod Bridgeman:
Okay.

Will Chrisman:
Exactly.

Jarrod Bridgeman:
What was the thinking behind the automatic enrollment? Is it more of just to get people into saving and get with retirement earlier?

Will Chrisman:
Yeah. From a few studies that I've seen with automatic enrollment, most people don't want to take the time to opt out. With a system that people are worried about not having enough funds for retirement, the federal government basically is making rules to make you explicitly opt out of benefits instead of having to opt into those.

Jarrod Bridgeman:
Well, you had mentioned that this is phase two or phase three, whatever you want to call it, coming in 2025. Is there anything worth of note in the next round, maybe 2026, that's maybe something that's poignant now that needs to really be pointed out?

Will Chrisman:
Yeah, great question.

Jarrod Bridgeman:
Well, thank you.

Will Chrisman:
Starting in 2026, we mentioned those catch-up contributions and the super catch-up contribution. In 2026, if a participant is earning over $145,000 in a year, those catch-up contributions ... Let's say the 58-year-old is doing the catch-up contribution amount of 7500 a year.

Jarrod Bridgeman:
Right.

Will Chrisman:
That 7500 would have to be classified as Roth. It would be taxed going into that, so when they reach retirement, those funds would then be non-taxable.

Casey Hiers:
Will, let's talk required minimum distributions. Get into that a little bit. What are they, when are they due?

Will Chrisman:
Yeah, absolutely. With required minimum distributions, for people in retirement, it's basically what the government is telling you from a traditional standpoint, so if you have a traditional IRA, they're basically telling you, "That money hasn't been taxed. We want our tax dollars, so you have to take it out, this amount, by the end of the year." Traditionally, the RMD age was at 70-and-a-half for quite a few years. If you were born before 1950, your RMD age was 70-and-a-half-years-old. That then bumped up to 72. Now with what Secure Act 2.0 is saying, if you were born between 1951 to 1959, your RMDs are due at the age of 73. That's when those start turning on. Then if you were born after 1960, those RMDs start at age 75.

The theory behind that was people were being able to live a little bit longer. They wanted to bump those age limits up to ensure that people weren't living past what they had saved. But also, on the RMD front, what Secure Act 2.0 has allowed is Roth 401Ks used to have a required minimum distribution period, like a traditional IRA would. With Secure Act 2.0, Roth 401Ks no longer have that RMD anymore. Those can stay there in that account as long as the-

Jarrod Bridgeman:
As long as you're alive?

Will Chrisman:
Yeah, exactly. As long as you're alive, that's a great way to put it.

Jarrod Bridgeman:
Yeah, that's interesting. I wanted to ask you about 529 plans. Has there been any changes with that, with any leftover funds or anything like that?

Will Chrisman:
Yeah, absolutely. That's a big topic of discussion for pre-planners that were really good about saving for their child's education.

Jarrod Bridgeman:
Right.

Will Chrisman:
And then there's money left over because you were so good at saving for your son or daughter's college education, that they have leftover and they don't want to pursue a Master's program. What you can do with the 529 now, through Secure Act 2.0, is you can now roll over an aggregate lifetime limit of $35,000 from that 529 plan to a Roth IRA plan.

Jarrod Bridgeman:
In that child's name?

Will Chrisman:
In that child's name, for the benefit of the 529 beneficiary. This is limited to the same limits as a normal Roth IRA for a year, which is set at 7000 for the contribution limit. With a Roth IRA, if you're going to roll over funds from the 529 plan that you have, if your child is contributing to a Roth IRA at that point or a traditional IRA, it's all the same limit.
Let's say my parents saved up in a 529, and I had $40,000 left in that IRA.

Jarrod Bridgeman:
Right.

Will Chrisman:
Sorry, that 529. I contribute $2000 to my Roth IRA that year. My parents would only be able to roll over $5000 from my 529 plan to the Roth IRA for the year, so it's an aggregate limit.

Jarrod Bridgeman:
Now can that be done every single year after that, until that fund dries up basically?

Will Chrisman:
Yeah, absolutely. You can do that as many years as you want until you hit the aggregate limit of $35,000 to the Roth IRA. Then with all 529s, as usual, try to roll those over to a family member, it's tax-free. Let somebody use those funds for education that you care about.

Jarrod Bridgeman:
Okay. These are some of the heavy hitters here you've explained to us. Is there anything else that really stood out to you from this act that you feel like our listeners really need to know?

Casey Hiers:
Save more money.

Jarrod Bridgeman:
Yes. Use these things to the best of your abilities. Work with your team to make sure you're saving enough money.

Will Chrisman:
Yeah.

Jarrod Bridgeman:
Is that what you were going to say, Will? Something along those lines?

Will Chrisman:
Absolutely. I think what we've seen with Secure Act 2.0 is the federal government looking for ways to help people save more money for retirement, as Social Security has become a little bit more strained and we've seen it more in the news. The government basically wants to ensure that people are doing what they can to save for retirement, so they're making rules a little bit easier for individuals to save. And with the automatic enrollment, they're actually making you opt out of retirement benefits that are available to you. Keep that in mind.

It's really important to work with your advisor, work with your accounting team in order to make sure you're taking advantage of these benefits. Because they are available, and there are a lot of things that are going to be changing in the next several years. There are different roll-outs that I want to make sure people are aware of and are able to take advantage of.

Casey Hiers:
I don't play them, but if there was a drinking game on how many times Will said Secure Act 2.0, we would have some intoxicated listeners.

Will Chrisman:
Yes, we would.

Casey Hiers:
But I appreciate how disciplined you were, getting into this and explaining it, because there's opportunity here. At Four Quadrants Advisory, we're all about maximize your savings, reduce your tax liability. There's so many different vehicles to do it, but it changes every 12 months. If you're not up on it, there's a lot.

Jarrod Bridgeman:
If this all sounded like gobbly-gook to you, this is when you need to reach out to your accounting team.

Casey Hiers:
Yeah. I actually said if somebody's taking feverish notes, I respect that as a listener.

Jarrod Bridgeman:
Right.

Casey Hiers:
To try to implement some of these things, it can be challenging. But hopefully your team, with some prodding, can take care of this for you.

Will Chrisman:
Yeah. It's really important, every single year, to really look at the IRS code and what the federal government is trying to change with regards to limits, with regards to where funds can go and when. Because there's all sorts of small, finite rules in here that, if you don't have a team that is looking through these items, that they can miss and you can miss out on some benefits that could have potentially been available for you.

Jarrod Bridgeman:
Will, thank you so much for being on here today. We really appreciate it. Once this gets out there, and we get some feedback, and they say, "We want more Will! Give us the Will!" Then we'll maybe bring you back on. Casey, thank you so much for being on here as well, and helping me guide this conversation.
Folks, if you were wanting to come see Casey, or one of our other wonderful speakers, speak on the business side of dentistry, we are going to be in the Philadelphia area, as well as Austin and Dallas this year. Then we just got done planning our 2025 slate of events, so I'll be putting out a little press release about that soon, so keep an eye out. We'll see you folks later.

Announcer:
Hello, everyone. Welcome to The Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.