Changes in the SDIRA and Solo 401(k) World

[Kaaren Hall]

Over the past five years, significant changes have occurred in the realm of self-directed IRAs (SDIRAs) and Solo 401(k) accounts, particularly following the introduction of the SECURE Act 2.0 in 2022. Consequently, here are the noteworthy updates:

Regarding Required Minimum Distributions:

1. **Increased RMD Age**: In 2023, the RMD age for tax-deferred accounts like Traditional, SEP, and SIMPLE IRAs rose from 72 to 73 years. Additionally, this age limit is set to increase to 75 years by 2033.

2. **Reduced RMD Penalty**: Previously, failing to take an RMD incurred a 50% excise tax, but this has now been lowered to 25%. Furthermore, if timely corrected, the penalty decreases to 10%.

3. **Revised Prohibited Transaction Rules**: Per the SECURE 2.0 Act, only the IRA involved in a prohibited transaction will face disqualification, rather than all of an individual's IRAs.

For Bonus Additions to IRA Savings:

4. **Increased Catch-Up Contributions (Effective 2025)**: An increase is planned for individuals aged 60-63, aimed at enhancing retirement savings in later years.

5. **Introduction of Saver's Match (Effective 2027)**: This new initiative holds particular significance for SIMPLE IRA account owners.

6. **More Flexible Contributions**: Both SEP and SIMPLE IRAs, which were limited to pre-tax contributions, will now accept both pre-tax and post-tax funds. Moreover, starting in 2024, catch-up contributions will be adjusted for inflation.

In Employer Programs:

7. **Mandatory Enrollment in 401(k)s (Starting 2025)**: New 401(k) plans will automatically enroll participants to contribute between 3% and 10%, with annual increases up to 10%-15%, though opting out remains an option.

8. **Matching Student Loan Payments in 401(k)s**: Employers will now be able to match student loan payments with contributions to 401(k)s.

9. **Transformation of Saver’s Credit**: After December 31, 2026, the Saver’s Credit will become a matching system, directly funding individuals’ retirement accounts.

Regarding Lost and Found:

10. **Retirement Savings Tracking System**: The Department of Labor is set to create a system to assist individuals in locating their pension or 401(k) benefits from previous employers.

In the Sphere of SDIRA Investments, Especially Cryptocurrencies:

1. **Crypto IRAs**: SDIRAs enable investment in a diverse array of assets, including cryptocurrencies like Bitcoin and Ethereum, gaining popularity for their portfolio diversification and inflation hedge potential.

2. **Varieties of Crypto SDIRAs**: Investors have the choice between Custodian Controlled SDIRAs, which offer a more streamlined process ensuring IRS compliance, and Checkbook Control SDIRAs, providing more freedom but necessitating greater personal involvement and compliance responsibility.

These updates showcase the dynamic nature of retirement planning and the integration of modern asset classes like cryptocurrencies into conventional investment strategies. While uDirect IRA Services does not offer fiduciary investment advice, they do provide a complimentary 20-minute consultation to address your queries.