How New Legislation Affects Each IRA Type

Retirement planning operates within a constantly evolving legislative framework. Congress periodically passes laws that change contribution limits, distribution rules, tax treatment, and other fundamental aspects of IRAs and other retirement accounts. Understanding how recent legislation affects traditional and Roth IRAs differently is essential because these changes can significantly impact your retirement strategy, the traditional vs. Roth decision, and your overall wealth accumulation. What made sense under the old rules might no longer be optimal under the new framework.

The most impactful recent changes came from the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) passed in December 2019 and SECURE 2.0 Act passed in December 2022. These laws made sweeping changes to retirement accounts, including raising the Required Minimum Distribution (RMD) age, eliminating the "stretch IRA" for most beneficiaries, increasing contribution limits for older workers, and creating new Roth options for workplace retirement plans. Some changes affect traditional and Roth IRAs equally, while others create new advantages or disadvantages for one type over the other.

This comprehensive guide explores how recent legislation affects each IRA type. We'll cover the major provisions of the SECURE Act and SECURE 2.0, explain which changes apply to traditional IRAs, which apply to Roth IRAs, and which affect both, discuss how these laws alter the traditional vs. Roth decision calculus, examine planning opportunities created by the new rules, and look ahead to potential future legislative changes. Whether you're actively contributing to an IRA, managing an existing balance, or planning your estate, understanding these legislative changes will help you optimize your retirement strategy under the current rules.

Overview: Major Retirement Legislation 2019-2024

The SECURE Act (December 2019)

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was the most significant retirement legislation in over a decade. Key provisions included:

Raising the RMD age from 70½ to 72
Eliminating the age limit for traditional IRA contributions
Eliminating the "stretch IRA" for most beneficiaries (10-year rule)
Expanding access to retirement plans for part-time workers
Creating new penalty-free withdrawal options for birth/adoption expenses

SECURE 2.0 Act (December 2022)

SECURE 2.0 built on the original SECURE Act with dozens of additional provisions:

Further raising the RMD age to 73 (2023) and eventually 75 (2033)
Reducing penalties for missed RMDs from 50% to 25%
Increasing catch-up contribution limits for ages 60-63
Requiring high earners' catch-up contributions to be Roth (starting 2026)
Allowing employer matching contributions to Roth accounts
Creating emergency savings accounts linked to retirement plans
Expanding automatic enrollment provisions

Other Relevant Changes

Annual inflation adjustments to contribution limits
Periodic updates to income phase-out ranges
Tax law changes affecting brackets and rates

RMD Age Changes: Bigger Impact on Traditional IRAs

The Evolution of RMD Age

Pre-SECURE Act (before 2020): RMDs began at age 70½

SECURE Act (2020-2022): RMDs begin at age 72

SECURE 2.0 (2023-2032): RMDs begin at age 73

SECURE 2.0 (2033+): RMDs begin at age 75

How This Affects Traditional IRAs

Traditional IRAs are directly impacted by RMD changes because owners must begin withdrawing taxable distributions at the RMD age:

Advantages of delayed RMDs:

More tax-deferred growth: Additional years of compounding before forced distributions
Larger Roth conversion window: More years between retirement and RMDs to convert at favorable rates
Better tax planning flexibility: More time to manage bracket optimization
Estate planning benefits: More wealth can stay tax-deferred longer

Example impact:

Someone born in 1951 (age 73 in 2024): RMDs begin now at 73 instead of 70½ under old law
This gave them 2.5 extra years of tax-deferred growth
On a $500,000 IRA growing at 6%, that's ~$75,000 in additional growth before forced distributions

How This Affects Roth IRAs

Roth IRAs have no RMDs during the owner's lifetime, so RMD age changes don't directly affect Roth IRA owners.

However, there's an indirect strategic impact:

The longer RMD deferral window makes traditional IRAs slightly more attractive during accumulation (more years before forced distributions)
But it also creates a longer Roth conversion opportunity window, making Roth conversions more valuable
The net effect slightly favors strategic Roth conversions during the expanded pre-RMD window

Planning Opportunity: Extended Conversion Window

If you retire at 62 and RMDs don't begin until 75, you have 13 years to convert traditional IRA balances to Roth at potentially low tax rates. This is much longer than the historical window and creates significant planning opportunities.

Strategy:

Retire at age 62-65
Convert $50,000-$80,000/year from traditional to Roth (stay in 12-22% brackets)
Pay taxes from non-IRA funds
By age 75, you've converted $500,000-$800,000+ at low rates
Remaining traditional IRA balance generates smaller RMDs, keeping you in lower brackets

The 10-Year Rule: Devastating for Traditional IRA Heirs

Old Rule: The "Stretch IRA"

Prior to the SECURE Act, non-spouse beneficiaries could "stretch" inherited IRA distributions over their entire life expectancy. A 40-year-old inheriting an IRA could take small distributions annually for 40+ years, allowing most of the balance to continue growing.

New Rule: 10-Year Distribution Requirement

For deaths occurring after December 31, 2019, most non-spouse beneficiaries must withdraw the entire inherited IRA within 10 years of the owner's death.

Key aspects:

No annual RMDs during the 10 years for most situations
Full account must be emptied by December 31 of the 10th year after death
Beneficiary chooses distribution timing within the 10-year window
Failure to empty the account results in a 50% penalty on the remaining balance

How This Affects Traditional IRA Heirs

The 10-year rule significantly harms traditional IRA beneficiaries:

Problem 1: Compressed taxation timeline

Instead of spreading distributions over 40+ years, heirs must withdraw everything within 10 years
This concentrates taxable income, potentially pushing heirs into higher brackets
Less time for tax-deferred growth

Problem 2: Timing often coincides with peak earning years

If parents die in their 70s-80s, children are often in their 40s-50s—peak earning years
Already in high tax brackets (24-32%)
Large inherited IRA distributions stack on top of high earned income
Results in massive tax bills

Example impact:

Daughter inherits $600,000 traditional IRA at age 45
She earns $120,000/year (24% bracket)
Over 10 years, she must withdraw $600,000 from inherited IRA
If she takes $60,000/year, it pushes her into 32% bracket
Total taxes on inherited IRA: ~$180,000-$192,000 (30-32% effective rate)
After-tax inheritance: ~$408,000-$420,000 from $600,000 IRA

How This Affects Roth IRA Heirs

The 10-year rule also applies to inherited Roth IRAs, BUT the impact is dramatically different:

Advantage: All distributions remain tax-free

Beneficiaries must still empty the account within 10 years
But every distribution is completely tax-free
No income tax consequences regardless of timing or bracket

Optimal strategy: Wait until year 10

Let the inherited Roth IRA grow tax-free for the full 10 years
Withdraw the entire (larger) balance in year 10
Still pay zero tax

Example impact:

Daughter inherits $600,000 Roth IRA at age 45
She leaves it growing for 10 years at 6% average return
Balance grows to ~$1,075,000
In year 10, she withdraws the entire $1,075,000
Total taxes: $0
After-tax inheritance: $1,075,000

Roth advantage over traditional: $655,000-$667,000 more after-tax wealth to heir

Strategic Implication

The 10-year rule massively increased the estate planning advantage of Roth IRAs over traditional IRAs. If leaving wealth to heirs is a goal, this legislative change alone is a powerful reason to favor Roth contributions and conversions.

Contribution Age Limit Elimination: Traditional IRA Benefit

Old Rule: Age 70½ Cutoff

Prior to the SECURE Act, you could not make traditional IRA contributions after age 70½, even if you had earned income. This rule was based on the old RMD age and created an arbitrary cutoff.

New Rule: No Age Limit

The SECURE Act eliminated the age limit for traditional IRA contributions. If you have earned income, you can contribute to a traditional IRA at any age.

How This Affects Traditional IRAs

This change benefits people working past age 70:

Who benefits:

People delaying retirement past 70
Retirees with part-time or consulting income
Business owners continuing to work
Anyone with earned income after age 70

Benefits:

Can continue building tax-deferred savings
Gets a tax deduction for contributions
Can partially offset RMDs from other accounts

Example:

Age 72 with $40,000 part-time consulting income
Can now contribute $8,000 to traditional IRA (includes catch-up)
Gets $8,000 tax deduction at 22% bracket = $1,760 tax savings
Under old rules, this wasn't possible

How This Affects Roth IRAs

Roth IRAs never had an age limit for contributions, so this change doesn't affect Roth IRAs directly.

However, there's a strategic consideration: People over 70 with earned income now have the choice between traditional IRA (tax deduction now, taxed later) and Roth IRA (no deduction, tax-free later). The analysis follows the same traditional vs. Roth framework as for younger savers.

Catch-Up Contribution Changes: Complex Roth Impact

Current Rules (2024-2025)

Workers age 50+ can make additional "catch-up" contributions:

IRA catch-up: Additional $1,000/year (total contribution $8,000)
401(k) catch-up: Additional $7,500/year (total contribution $30,500)
Can be made to traditional or Roth accounts at worker's choice

SECURE 2.0 Changes

Enhanced catch-up for ages 60-63 (effective 2025):

Workers ages 60-63 can make larger catch-up contributions to workplace plans
401(k) catch-up increases to $11,250 (50% higher than regular catch-up)
Encourages late-career savers to boost retirement savings

Mandatory Roth for high earners (effective 2026):

Workers earning $145,000+ (indexed for inflation)
Must make catch-up contributions to Roth accounts (not traditional)
Applies to 401(k), 403(b), and governmental 457(b) plans
Does NOT apply to IRA catch-up contributions

How This Affects High Earners

Before 2026:

High earner age 62, earns $200,000
Can make $7,500 catch-up to traditional 401(k)
Gets tax deduction at 24-32% bracket = $1,800-$2,400 tax savings

Starting 2026:

Same person must make $7,500 catch-up to Roth 401(k)
No tax deduction—pays full taxes now
But gains tax-free growth and withdrawals

Strategic Implications

For high earners approaching ages 50-63:

In 2024-2025, you can still choose traditional vs. Roth for catch-up
Starting 2026, choice is removed—must use Roth for catch-up if high earner
This forces tax diversification for high-income late-career savers
Not necessarily bad—Roth accounts provide valuable flexibility
But removes the ability to maximize current-year tax deductions

Planning opportunity before 2026:

High earners who want traditional catch-up contributions should maximize them in 2024-2025
After 2026, you'll be forced into Roth catch-up if earning $145,000+

Reduced RMD Penalties: Helps Traditional IRA Owners

Old Rule: 50% Penalty

If you failed to take your full Required Minimum Distribution, the penalty was 50% of the amount you should have withdrawn but didn't.

Example:

Required to withdraw $20,000
Forgot and withdrew only $5,000
Shortfall: $15,000
Penalty: 50% × $15,000 = $7,500 (plus you still owe income tax on the $15,000)

New Rule: 25% Penalty (10% if Corrected)

SECURE 2.0 reduced the penalty to 25% of the shortfall. If you correct the error quickly (within the correction window), the penalty is further reduced to just 10%.

Example under new rules:

Same $15,000 shortfall
Penalty: 25% × $15,000 = $3,750
If corrected quickly: 10% × $15,000 = $1,500

How This Affects Traditional IRAs

Traditional IRA owners benefit from the reduced penalty:

More forgiving if you make an honest mistake
Reduces the cost of administrative errors
Still a substantial penalty, but not as devastating as 50%

How This Affects Roth IRAs

Roth IRAs have no lifetime RMDs, so this change is irrelevant to Roth IRA owners.

Strategic note: The RMD penalty reduction makes traditional IRAs slightly less risky from a compliance standpoint, but it doesn't fundamentally change the traditional vs. Roth analysis. The lack of RMDs remains a significant advantage of Roth IRAs.

Qualified Charitable Distributions: Traditional IRA Advantage

What Are QCDs?

Qualified Charitable Distributions allow people age 70½+ to donate up to $105,000/year (2024 limit, indexed) directly from a traditional IRA to charity:

The distribution counts toward RMD requirement
But it's excluded from taxable income
You don't get a charitable deduction (because it wasn't included in income)
Effectively makes the RMD tax-free

Recent Legislative Changes

SECURE 2.0 enhanced QCDs:

The $100,000 limit is now indexed for inflation ($105,000 in 2024)
Allows a one-time $50,000 QCD to a charitable gift annuity, charitable remainder trust, or charitable remainder annuity trust
Clarified rules and expanded flexibility

How This Benefits Traditional IRAs

QCDs turn a traditional IRA distribution (normally taxable) into a tax-free charitable gift:

Example:

Age 75 with $30,000 annual RMD requirement
Donate $20,000 to charity via QCD
That $20,000 satisfies RMD requirement but is excluded from income
Only the remaining $10,000 is taxable
In the 22% bracket, this saves $4,400 in federal taxes

Benefits for charitable givers:

More tax-efficient than taking the distribution and donating separately
Reduces adjusted gross income (affects Medicare premiums, Social Security taxation, etc.)
Allows charitable giving even if you don't itemize deductions

How This Relates to Roth IRAs

Roth IRAs do NOT benefit from QCD strategies:

Roth distributions are already tax-free
You can't use QCDs from Roth IRAs
If you want to donate to charity, you'd withdraw from Roth (tax-free) and donate (potentially getting a charitable deduction)

Strategic Implication

If you plan substantial charitable giving in retirement, traditional IRAs provide a unique advantage through QCDs. This can offset some of the tax disadvantage of traditional IRAs and should factor into your traditional vs. Roth decision if charitable giving is a priority.

Employer Roth Match: New SECURE 2.0 Provision

Old Rule: Matches Always Go to Traditional

Historically, employer matching contributions in 401(k) plans always went to traditional (pre-tax) accounts, even if the employee contributed to a Roth 401(k).

Problem: This created an asymmetry where employees couldn't get full Roth treatment if they wanted their match in a Roth account.

New Rule: Optional Roth Match

Starting in 2023, SECURE 2.0 allows employers to offer Roth matching contributions:

Employees can choose to receive employer matches in a Roth account
The match is treated as taxable income in the year contributed
Then grows tax-free like other Roth 401(k) contributions
Employers must offer this option—it's not mandatory

How This Works

Example:

Employee earns $80,000, contributes 6% to Roth 401(k) ($4,800)
Employer matches 50% of contributions = $2,400 match
Under old rules: $2,400 match goes to traditional 401(k) (pre-tax)
Under new rules (if employer offers): Employee can elect to have $2,400 match go to Roth 401(k)
The $2,400 is included in taxable income (employee pays tax on it now)
But then it grows tax-free forever

Strategic Considerations

Advantages of Roth match:

Entire 401(k) balance becomes Roth (complete tax-free treatment in retirement)
No need to manage two different account types
Maximizes tax-free compounding

Disadvantages:

Increases current-year taxable income (pays tax on the match amount now)
Reduces take-home pay slightly (due to higher taxes)
May not make sense for high earners who would benefit more from traditional

Who should elect Roth match:

Younger workers (long time horizon for tax-free growth)
Lower tax brackets (12-22%) where current tax cost is modest
People who want complete Roth treatment
Those expecting higher tax brackets in retirement

Who should stick with traditional match:

High earners in 32%+ brackets
People expecting lower brackets in retirement
Those who want to minimize current taxes

How Legislative Changes Affect the Traditional vs. Roth Decision

Taking all recent legislative changes together, here's how they impact the decision calculus:

Changes That Favor Roth IRAs

The 10-year rule: Dramatically increases the inheritance advantage of Roth IRAs. If estate planning is important, this is a major factor favoring Roth.
Extended RMD age: Creates longer Roth conversion windows, making strategic conversions more valuable.
Mandatory Roth catch-up for high earners (2026+): Forces high earners into Roth accounts for catch-up contributions, increasing Roth balances.

Changes That Favor Traditional IRAs

Elimination of age limit: Allows traditional contributions past age 70, providing more opportunities for tax deductions in later years.
Enhanced QCD provisions: Makes traditional IRAs more valuable for charitable givers.
Extended RMD age: Also benefits traditional IRAs by allowing more years of tax-deferred growth before forced distributions.

Changes That Benefit Both

Higher contribution limits: Regular inflation adjustments allow more savings in both account types.
Reduced RMD penalties: Less punitive compliance environment (mainly affects traditional, but creates a better overall system).
Increased catch-up contributions (ages 60-63): Allows more savings in late career, regardless of account type chosen.

Net Impact

On balance, recent legislation has slightly increased the relative advantage of Roth IRAs, primarily due to the 10-year rule's dramatic impact on inherited accounts. For people concerned about leaving wealth to heirs, this legislative change alone is a compelling reason to favor Roth contributions and conversions.

However, traditional IRAs remain advantageous for high earners expecting lower retirement brackets, especially those who plan substantial charitable giving (QCDs) or relocating to lower-tax states in retirement.

Planning Opportunities Created by Recent Legislation

Opportunity 1: Maximize the Extended Conversion Window

Strategy: Use the years between retirement and RMDs (now potentially 10-13 years if you retire at 62-65) to aggressively convert traditional IRA balances to Roth at low tax rates.

Action steps:

Retire in early-to-mid 60s
Live off taxable investments, Roth IRA contributions, or cash reserves
Convert $50,000-$100,000/year from traditional to Roth (stay in 12-22% brackets)
Pay conversion taxes from non-IRA funds
By age 75 (when RMDs begin), you've shifted substantial balances to Roth at favorable rates

Opportunity 2: Strategic Catch-Up Contributions Before 2026

Strategy: High earners who want traditional (not Roth) catch-up contributions should maximize them in 2024-2025 before the mandatory Roth catch-up rule takes effect in 2026.

Action steps:

If you're a high earner ($145,000+) age 50+, max out traditional 401(k) catch-up contributions now
This captures the tax deduction at your high bracket
Starting 2026, you'll be forced into Roth catch-up
Maximize the traditional tax benefit while you still can

Opportunity 3: Roth Conversions for Estate Planning

Strategy: If you plan to leave IRA assets to heirs, convert traditional IRAs to Roth before death to eliminate the income tax burden on beneficiaries.

Action steps:

Calculate the income tax cost of traditional IRA inheritance for your heirs (likely 24-37% if they're successful)
Compare to your current tax rate (possibly 12-22% if retired)
If you're in a lower bracket than your heirs, convert traditional to Roth and pay the tax at your lower rate
Your heirs inherit tax-free Roth IRA instead of taxable traditional IRA
Combined with the 10-year rule, this provides maximum after-tax wealth to heirs

Opportunity 4: QCD Strategy for Charitable Givers

Strategy: If you're charitably inclined, use QCDs from traditional IRAs to satisfy RMDs tax-free, effectively making charitable giving more tax-efficient.

Action steps:

At age 70½+, direct RMDs to charity via QCD
This reduces your taxable income
Lowers AGI, which can help with Medicare premiums, Social Security taxation, and other income-based thresholds
More tax-efficient than taking the distribution and donating separately
Consider maintaining traditional IRA balances specifically for QCD strategy if charitable giving is a priority

Future Legislative Changes to Watch

Retirement legislation continues to evolve. Here are potential future changes that could affect IRAs:

Possible Changes Under Discussion

Further RMD age increases: Could eventually reach age 80+
Elimination of backdoor Roth: Periodically proposed but not yet enacted
Changes to Roth conversion rules: Possible limits or restrictions for high earners
Required Roth conversions: Forcing large traditional IRA balances to convert
Income limits on traditional IRA deductions: Tightening who can deduct
Changes to inherited IRA rules: Further restrictions beyond the 10-year rule
Lifetime contribution limits: Caps on total retirement savings (already proposed for very large accounts)

Tax Law Sunset (2025)

Current individual income tax rates are scheduled to sunset at the end of 2025, reverting to higher pre-2018 rates unless Congress acts:

12% bracket becomes 15%
22% bracket becomes 25%
24% bracket becomes 28%
32% bracket becomes 33%
35% bracket becomes 35% (no change)
37% bracket becomes 39.6%

Impact on Roth vs. Traditional: If rates increase, Roth contributions made under current lower rates become even more valuable. This creates urgency to make Roth contributions and conversions in 2024-2025.

How to Stay Informed

Review IRS announcements annually (IRS.gov)
Follow reputable financial news sources
Consult with a CPA or financial advisor annually
Be prepared to adjust your strategy as laws change

Action Steps: Adjusting Your Strategy for Current Laws

Step 1: Review Your Current IRA Strategy

Reassess your traditional vs. Roth contributions in light of recent legislative changes:

If you're prioritizing estate planning, recent changes favor Roth more strongly
If you're approaching retirement, the extended conversion window creates opportunities
If you're a high earner over 50, plan for mandatory Roth catch-up starting 2026

Step 2: Evaluate Roth Conversion Opportunities

Consider whether the extended RMD age creates a valuable conversion window for you:

Calculate your expected tax bracket in early retirement (before RMDs)
Compare to expected bracket with RMDs and Social Security
If there's a significant difference, Roth conversions during the gap years could save substantial taxes

Step 3: Update Beneficiary Designations

With the 10-year rule in effect, review your beneficiary designations:

Understand that non-spouse beneficiaries will face the 10-year rule
Consider whether Roth conversions would benefit your heirs
Discuss the 10-year rule with your heirs so they understand and plan appropriately

Step 4: Plan for QCDs If Applicable

If you're charitably inclined and approaching age 70½:

Understand how QCDs work
Consider maintaining traditional IRA balances specifically for QCD strategy
Coordinate with your overall charitable giving plan

Step 5: Consult with Professionals

Given the complexity of recent changes, consider working with:

CPA: For tax planning and analysis
Financial advisor: For overall retirement and investment strategy
Estate planning attorney: For beneficiary designations and estate documents

Conclusion

Recent retirement legislation—particularly the SECURE Act and SECURE 2.0—has significantly changed the IRA landscape, with different impacts on traditional and Roth IRAs. The most consequential change is the elimination of the stretch IRA and implementation of the 10-year rule, which dramatically increased the estate planning advantage of Roth IRAs over traditional IRAs. Combined with the extended RMD age creating longer Roth conversion windows, these changes have shifted the traditional vs. Roth calculus somewhat in favor of Roth for many savers.

Key takeaways:

The 10-year rule devastates traditional IRA heirs but has minimal impact on Roth IRA heirs—major advantage for Roth
Extended RMD age (now 73, eventually 75) creates valuable Roth conversion opportunities during early retirement
Mandatory Roth catch-up for high earners (starting 2026) forces tax diversification for late-career savers
Enhanced QCD provisions provide unique advantages for traditional IRAs if you're charitably inclined
Elimination of traditional IRA age limit allows continued contributions past age 70 if you have earned income
Future changes are likely—stay informed and be ready to adjust your strategy

The traditional vs. Roth decision has never been purely about current tax rates versus future tax rates. Legislative risk—the possibility that Congress will change the rules in ways that affect your strategy—has always been a factor. Recent changes demonstrate how quickly and significantly the rules can shift, generally in ways that increase the relative advantage of Roth accounts. This legislative risk, combined with the specific provisions of recent laws, provides additional reasons to favor Roth contributions and conversions for many savers, particularly those with estate planning goals or long time horizons.

Review your IRA strategy annually to ensure it aligns with current laws and your evolving circumstances. What made sense three years ago might not be optimal today, and what's optimal today might change again with future legislation.