The Secure Act 2.0 was part of the omnibus government funding bill passed at the end of 2022. There are many provisions of this act that are intended to encourage Americans to save more for retirement, but it also means that every business has compliance requirements to begin considering. There are two and a half pages of compliance actions and effective dates when presented in chart format. Since a blog post isn’t designed for that level of detail, we are going to highlight a few of the main points.
The age to determine when required minimum distributions begin has changed effective 2023. There is an issue in the original wording of the document that will need to be corrected for those born in 1959. Here are the dates as currently presented.
Born 1950 or earlier: April 1 of the year following the year in which the taxpayer turned age 72
Born 1951 – 1959: April 1 of the year following the year in which the taxpayer turned age 73
Born 1959 or later: April 1 of the year following the year in which the taxpayer turned age 75
We will monitor for updates for those born in 1959; however, they still have several years before this takes affect for them.
Also, for individuals, there are new increased amounts for catch up contributions for those who turn 60, 61, 62 or 63 during a year. This will allow for catch-up contributions to be increased to the greater of $10,000 or 50% more than the regular catch-up contribution amount. This provision takes effect in 2025. While employers will need to be able to monitor and process these contributions this mainly effects the employee rather than the employer. The IRA catch-up contributions will now be indexed for inflation in $100 increments beginning in 2024. These were previously held at $1,000 with no change for inflation.
There are some changes to how SIMPLE plans can be treated and ROTH components of those plans. For example, SIMPLE IRAs and SEP plans may now allow employees to treat contributions as Roth contributions (other Roth limitations still apply). Defined contribution plans can now provide participants the option of treating matching contributions as Roth contributions. As we discussed in another blog there is also an allowance for tax and penalty free rollovers from 529 accounts (also with limitations). There is a significant increase in the age limit for ABLE accounts that takes effect in 2026.
A big change for employers is that they will now be permitted, starting in 2024, to make qualified retirement plan matching contributions to employees who are not contributing to the plan if that employee is making qualified student loan payments. This is a big win for getting student loan debt paid off and still allowing employees to save for retirement. More details will be available as implementation nears and your third-party administration or plan adviser will be able to assist in this process. There will likely be some amount of certification or record keeping required. There will also likely be a provision for fairness or equitable treatment.
The biggest change for employers is that when employees become eligible for participate in a 401(k) or 403(b) plan, they will be automatically enrolled. There is an exception for businesses with 10 or fewer employees and this provision begins in 2025. With this provision there are also tax credits for new smaller plans, so it is critical you discuss your plan set up with your CPA. Many of these credits are set up to prevent what is called double-dipping so make sure you review them carefully.
