The SECURE Act 2.0 which was passed in December of 2022 calls for several changes to retirement saving and plan administration rules. Many of the changes are designed to expand access and encourage broader participation in employer sponsored retirement plans. Included as part of the Consolidated Appropriations Act of 2023, the legislation builds on many of the reforms made in the SECURE Act of 2019. Since the legislation is comprehensive not all the changes became effective when passed instead relying on a gradual phase-in over a several year period. Starting in 2024 several provisions will become effective including certain required minimum distribution rules (RMDs), the introduction of new 401(k) starter plans, penalty free early distributions, and much more. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Provisions Effective in 2024 – Participants
- Emergency Personal Expense Distributions – Starting in 2024, a distribution from a retirement plan for the purpose of paying a personal emergency expense is exempt from the 10% excise tax. An emergency expense is defined as any unforeseeable expense or immediate financial need related to a personal of family emergency. The amount of the distribution may not exceed $1,000. It is important to note that once an emergency distribution is taken another cannot be taken for a three-year calendar period unless the prior amount has been repaid.
- Victims of Domestic Abuse Distributions – Also effective in 2024, victims of domestic abuse will be permitted to take penalty free withdrawals from a retirement plan. The amount cannot exceed $10,000 or 50% of the account balance during the one-year period an individual is a victim of domestic abuse. Section 314 allows the distribution to be repaid over a three-year period starting on the date of distribution. The limit is indexed to cost of living starting in 2025.
- Required Minimum Distributions – There were two changes made to RMDs which are scheduled to become effective in 2024. Section 327 allows a surviving spouse to be treated as the deceased employee for purpose of RMD, and Section 325 eliminates the pre-death RMD requirement for ROTH saving accounts.
- Catch Up Contributions – In the past IRA catch up contributions have been limited to $1,000 which is unlike the same contributions for qualified retirement plans which are indexed to cost of living adjustments (COLA). Starting in 2024, IRA catch up contributions will be indexed to COLA.
- Qualified Charitable Distributions (QCD) – When introduced in 2006, the limit on the amount of a QCD was limited to $100,000. Unfortunately, this amount has remained the same for the last 17 years. Starting in 2024, the limit will be indexed for inflation.
Provisions Effective in 2024 – Plan Sponsors
- Starter 401(K) Plans – Employers that do not currently sponsor a retirement plan will soon be able to adopt a starter 401k or safe harbor 403b plan. This plan type generally requires all employees to be automatically enrolled with a deferred compensation rate between 3% – 15%. The deferral limit would be $6,000 with a $1,000 catch-up allowance for participants starting at age 50. Section 121 is effective starting in January 2024.
- Elective Deferral Failures – To make it easier for plan sponsors to correct certain type of plan failures, SECURE Act 2.0 includes a provision that creates a grace period to correct reasonable errors. Section 350 allows sponsors to correct, without penalty, errors made in administering either automatic enrollment or escalation. It is important to note the errors must be corrected within 9 and a half months after the plan year end in which the error occurred.
- Plan Amendment Deadline – Section 316 allows for a longer time to adopt plan amendments that increase a participant’s benefits. Under current regulations such amendments must be made by the end of the plan year in which the amendment is effective. Starting in 2024, the timeline has been extended to the due date of the employer’s tax return.
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The SECURE Act 2.0 calls for several changes to plan operations and participant benefits. There are several changes coming at the start of next year that plan sponsors need to consider. For this reason, it’s important to consult with a qualified advisor to determine how you will be impacted. If you have questions about the information outlined above or need assistance with your benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.