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Feb 5, 2024

What You Need to Know About SECURE 2.0 and Its Effect on Retirement Plans

Sponsored Content provided by Jason Wheeler - CEO, Pathfinder Wealth Consulting

The SECURE Acts of 2019 and 2022 are the most impactful pieces of legislation to hit the retirement industry in some time. The acts introduced changes, both mandated and optional, that go into effect over multiple years. Additionally, corrections and clarifications continue to work themselves through the legislative process making this dynamic bit of law an ongoing work in process with various measures coming into effect over time. We wanted to share the changes for retirement plans that became effective in 2024.  

Retirement Plans:

  • Starter 401(k) plans – optional new type of 401(k) or 403(b) with salary deferral only that auto-enrolls employees at 3-15%. Contribution limits will be the same as IRA, including catch-up. Participant eligibility can be up to one year and age 21. 
  • Roth catch-up contribution rule – IRS Notice 2023-62 announced an administrative delay on this provision which now won’t begin until the 2026 plan year. Age 50 catch-up contributions for participants with more than $145,000 in compensation for the previous year must be Roth.
  • Matching student loan payments – 401(k), 403(b), 457(b), and SIMPLE IRA plan sponsors may amend plans to provide for a matching contribution for those participants who make student loan payments. 
  • Revised 5500 requirements (for filing due by July 2024 for the 2023 plan year) – changing participant count method to reduce participant number threshold for audit from eligible participants to participants with account balances. This will reduce annual audit requirements for employers with fewer than 100 countable participants and reduce full 5500 filing requirements (available to file 5500-SF). 
  • Long-term, part-time employees – 2024 would be the first year that participants covered under the SECURE 1.0 Act – 500 hours in three consecutive years rule – would be eligible to enter the plan. This rule changes with SECURE 2.0 to a two-year rule with first year of eligibility being 2025. 
  • Penalty-free distributions for:
    • Emergency expenses – $1,000 max, one per year; self-certification is allowed; repayment eligible within three years; no additional distributions allowed during the repayment period unless original amount is repaid in full. 
    • Domestic abuse – cannot exceed the lesser of $10,000 (subject to indexing) or 50 percent of vested balance; distributions must be within one year of abuse; self-certification is allowed; repayment eligible within three years. 
  • Excluding certain employees from top-heavy testing – plans may perform top-heavy testing by excluding employees who have not met the minimum age and service requirements for participation.
  • Increasing benefit accruals for previous plan year – retroactive plan amendments can be made to a plan (i.e., increasing a profit-sharing contribution), other than increasing matching contributions, by tax-filing deadline including extensions. 
  • Pension-linked emergency savings accounts (optional) – up to 3 percent or $2,500 – ­whichever is less, Roth only, held in cash. Must be able to withdraw at least once a month, no fees on the first four withdrawals, can be used for a matching formula. Upon triggering event (i.e., separation from service) can move funds into designated Roth deferral category in the plan or take distribution. 
  • Increase in involuntary cash-out limit – from $5,000-$7,000. 
  • Automatic portability destination options – if a participant is under the limit for automatic rollover to an IRA, a retirement plan can now partner with a service provider to offer a service to automatically roll over the participant’s defaulted IRA to their new employer’s plan. Optional. 
  • Retirement savings lost and found – TPAs will have to start furnishing information on current and former participants to the DOL. 
  • 9.5 months after plan year end to correct Safe Harbor – plan sponsors have 9-1/2 months to correct employee elective deferral failures auto-enrollment/auto-escalation errors. 
  • Hardship withdrawal changes for 403(b)s – QNEC, QMAC, and earnings on those contributions in addition to salary deferrals may now be included in a hardship withdrawal. 
  • Reformed family attribution rules to determine common ownership – modifies the attribution of stock between parents and minor children (no longer attributable if under age 21). Addresses where spouses with separate business reside in community property state compared to residing in separate property states (community property state rules are disregarded).
  • No predeath (age 73) RMDs for Roth deferrals – unless already subject to RMDs prior to 2024. 
  • Surviving spouse can elect to be treated as deceased employee – for RMD purposes.
At Pathfinder, we work with individuals to achieve long term success with their retirement plans and tax efficiency. We recognize that SECURE 2.0 is extensive; it’s part of an act with more than 4,000 pages. There are additional provisions not covered in this summary that may have an impact on specific situations, making it important that we continue the conversation. Our team of Certified Financial Planner™ professionals have extensive knowledge and experience creating tailored plans that align with your goals and requirements. To learn more about how we can establish your financial independence, visit our website; or give us a call at 910.793.0616. We are here to guide you forward.    
Advisory services offered through Commonwealth Financial Network®, a Registered Investment Advisor.

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