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SECURE Act 2.0: Key Changes for 2024

To most, the SECURE Act 2.0 appeared to predominantly outline optional changes that go into effect over the span of 10 years. However, there are a few mandatory changes taking effect in 2024 that plan sponsors will need to comply with. These provisions require sponsors to work with their advisors, recordkeepers, and providers to develop a strategy for incorporating them into their plan design, as well as dealing with the cost implications that come with it.

The biggest mandatory change coming next year is the requirement that catch-up contributions made by high-income earners be treated as after-tax contributions. This means that starting in 2024, employees making catch-up contributions who earn at least $145,000, and are 50 years or older, must be contributing into a Roth account. For sponsors who don’t currently offer employees a Roth, this poses a challenge. They will be faced with the decision of either establishing a Roth option to satisfy this provision or eliminating the catch-up contribution program for high-income earners. As most sponsors are choosing the first option, employees will be strongly encouraged to adopt a Roth 401(k) to begin with.

Other mandatory changes to look out for in 2024 are regarding required minimum distributions (RMDs). One new provision allows a surviving spouse to be treated as their deceased partner for the purpose of RMDs. This is crucial for a widow who is younger than the deceased. It means they can delay withdrawals to when they, themselves, are at the minimum age of RMD, rather than having to take RMDs out earlier, when their deceased spouse would’ve been the minimum age. Additionally, the SECURE Act 2.0 named Roth accounts in employer retirement plans exempt from RMD requirements starting in 2024. Previously, Roth 401(k) account holders who wanted to bypass RMDs would need to roll over their funds into a Roth IRA. Now, they can avoid dealing with a transfer of assets and the Roth IRA five-year rule by keeping their 401(k), RMD requirement free.

As we approach 2024, sponsors should also understand the optional changes going into effect and decide whether or not they can use them to optimize their plan designs. Examples of these include:

  • Employee student loan payments matched with employer contributions to a retirement account;
  • Introduction of the ability to transfer certain benefits between accounts (automatic portability); and
  • Allowance of self-certifying emergency savings withdrawals up to $1,000 per year.

These provisions offer opportunities for plan committees to evaluate their current plan design and determine what changes can be made to support employee needs and help attract talent.

As each year brings more changes into effect, it’s important that sponsors rely on their advisors and recordkeepers to stay up to date on the latest legislative changes. Recordkeepers will have a summary on the SECURE Act 2.0 provisions that are relevant to their particular plan. This will serve as a great resource for plan committees as they try to navigate upcoming changes.

Technical Corrections to SECURE 2.0

Mistakes are inevitable in drafting legislation. This is especially true in tax legislation as tax law is complex and more nuanced as compared to other areas of the law. Technical corrections are made to rectify unintended glitches and mistakes so that the legislation reflects the original intent of Congress.

Congress has informed the Treasury Department that it intends to make four technical corrections to SECURE Act 2.0 (see below). These corrections will fix minor glitches in the statute. More changes are expected. One such change is the result of the industry lobbying to push back the effective date from 2024 for the new rule that individuals with wages exceeding $145,000 may make catch up contributions only on a Roth basis.

  • Catch Up Contributions: The section of the statute under which individuals with wages exceeding $145,000 in the previous year may only make catch up contributions on a Roth basis includes a conforming provision that inadvertently eliminated catch up contributions after 2023. The letter indicates that this was not Congress’s intent.
  • Age for Minimum Required Distribution: The SECURE Act incrementally increases the beginning date for required minimum distributions from age 72 to 75. The timing for the increase from age 73 to 75 is not clear. The letter states that the increase from 73 to 75 in 2033 is intended to apply to individuals who turn 73 after 2032 and not individuals who turn 74 after 2032.
  • SEP and SIMPLE IRA Roth Contributions: The Act permits SIMPLE IRA plans and SEP plans to include a Roth IRA. The letter clarifies that Roth contributions to SEP and SIMPLE IRAs are not intended to count against the Roth IRA contribution limit.
  • Small Employer Tax Credit: The Act increases from 50 percent to 100 percent the startup credit to cover plan expenses for employers with no more than 50 employees - annual limit of $5,000. There is also a new tax credit equal to a percentage of employer contributions - limited to $1,000 per employee. The letter clarifies that the new tax credit for employers that make contributions to the plan is intended to be in addition to the start-up tax credit and thus should not count toward the annual $5,000 limit on the start-up tax credit.


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