2024 is approaching and many provisions from Secure Act 2.0 will go into effect during the new year.
These provisions aim to make it easier for businesses to offer retirement plans and to help individuals to plan for their future.
Key Secure 2.0 Provisions in Effect for 2024
Long-Term Part-Time Eligibility
Secure Act 2.0 passed a provision that builds on the SECURE Act requirement that allows long-term part-time workers to participate in employer-sponsored plans. Employers must recognize that both the new two-year rule and the older three-year rule are currently in place. As a result, employees who qualify for the previous rule must be allowed to defer in 2024.
Higher Catch-Up Savings Maximum
Employees aged 50 years or older can make catch-up contributions to their retirement plan above the otherwise applicable limits. The 2024 limit on catch-up contributions is $7,500.
Student Loan Matching Contributions
Starting in 2024, employers can amend their plan to allow an employee’s student loan payments to be considered elective deferrals for matching purposes (401k, 403b, 457b government plans, and SIMPLE IRA plans).
Distribution Cash-Out Limit
Beginning in 2024, if a participant who has an account balance between $1,000 and $7,000 (up from the current limit of $5,000) does not make a timely distribution election, then their account balance will be distributed to an automatic rollover IRA.
Roth Exemption From RMDs
Once participants reach their required beginning date, they are typically expected to receive lifetime RMDs from both their pre-tax and Roth accounts. Starting in 2024, participants will no longer need RMDs from their Roth accounts. It's important to note that participants will still need to receive lifetime RMDs from their pre-tax accounts.
Emergency Distributions
Starting in 2024, Secure 2.0 will expand access to retirement funds for personal or family emergencies, victims of natural disasters (backdated to January 26, 2021), and survivors of domestic abuse without incurring a 10% early withdrawal penalty.
Emergency Savings Accounts
Beginning in 2024 employers may automatically opt employees into these accounts at no more than 3 percent of their salary, and the portion of an account attributable to the employee’s contribution is capped at $2,500 (or lower as set by the employer).
Domestic Abuse Distributions
In 2024 plans can permit participants a domestic abuse distribution up to one year after they experience domestic abuse by a spouse or domestic partner. The distribution amount cannot exceed the lesser of $10,000 (indexed after 2024) or 50% of the participant’s vested account balance.
Additional Provisions to Consider in 2024
Catch-up Contributions Required to Be Roth
Under current law, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis (if permitted by the plan sponsor). Secure 2.0 required all catch-up contributions to qualified retirement plans to be subject to Roth tax treatment, starting in taxable years beginning after December 31, 2023, except for employees with compensation of $145,000 or less.
However, the IRS granted a two-year delay in the provision's effective date that mandates catch-up contributions must be Roth for those earning more than $145,000. More specifically, catch-up contributions can now be made on a pre-tax basis through 2025, regardless of income.
Automatic Enrollment
The Secure Act 2.0 of 2022 decreed that beginning on January 1st, 2025, companies with new 401(k) or 403(b) plans must automatically enroll all eligible employees at a pretax contribution rate of at least 3%, but not to exceed 10%.
Automatic Enrollment Tax Credit
Small businesses are eligible for a $500 tax credit by adding an automatic enrollment feature to a new or existing 401(k) plan.
Beginning in 2025, employers with new 401(k) and 403(b) plans (with certain exceptions) will be required to have an automatic enrollment provision.
Increased Start-Up Credits
The Secure Act 2.0 offers a tax credit that covers 100% of 401(k) qualified costs for businesses with under 50 employees. Additional tax credits are also offered for businesses sponsoring a defined benefit plan.
Employer Contribution Credit
Small businesses starting a new retirement plan are eligible to receive a tax credit for employer matching or profit-sharing contributions for the first five years of the plan.
Overall, Secure Act 2.0 is set to bring about positive changes that will benefit both businesses and employees in the long run with the potential to improve retirement security for millions of Americans and help ensure that more workers can save enough for a comfortable retirement.
For more tips and information regarding retirement plans, contact us.
