SECURE 2.0 Act: What’s New for 2024?

The SECURE 2.0 Act, passed in December 2022, includes over 90 provisions intended to modernize the retirement system, encourage savings, and change the rules around U.S. retirement plans. Some provisions of the law are mandates, while others are optional changes or benefits that plan sponsors can choose to adopt. A handful of requirements were put in place during 2023; the remaining provisions will be implemented gradually over the next several years. Outlined below are a few that took effect in 2024.

Required Minimum Distributions (RMDs)

RMDs are no longer required from Roth accounts in employer retirement plans, including 401(k) plans. This change aligns these accounts more closely with Roth IRAs, which are not subject to RMDs. In addition, surviving spouses now can be treated as the deceased employee for RMD calculations. This means the individual can elect to calculate the RMD on his/her deceased spouse’s IRA as if he/she were the account owner and use the Uniform Lifetime Table.

Pension-Linked Emergency Savings Accounts (PLESAs)

PLESAs are a financial tool designed to help employees save for emergencies within the framework of their existing retirement plan. Beginning in 2024, employers are permitted to offer PLESAs linked to employees’ retirement accounts. Non-highly compensated employees can contribute to these savings accounts with after-tax dollars up to a maximum of $2,500 annually. If the employer provides matching contributions within the plan, it must also match contributions to PLESAs at the same rate as it does for other matching contributions within the plan. There are no penalties or fees for the first four withdrawals each year. If an employee leaves the company, he/she can cash out the savings or roll it into a Roth retirement savings account.

Student Loan Payments

Employers may now treat employees’ student loan payments as an elective deferral and match the amount paid, putting it toward the worker’s retirement savings account. This provision applies to 401(k), 403(b), SIMPLE IRA, and governmental 457(b) plans.

Section 529 Plan Rollovers

Beginning this year, beneficiaries of 529 college savings plans can roll over money in his/her account to a Roth IRA. Rollover amounts are limited to a lifetime maximum of $35,000 and are subject to the applicable Roth IRA annual contribution limit ($7,000 for 2024). Rollover amounts cannot include contributions made to the plan in the previous five years, and the 529 account must have been open for at least 15 years.

Starter 401(k) Plans

A new type of retirement plan is available for employers not already sponsoring a qualified retirement plan, called a “starter 401(k).” Employers must automatically enroll all employees at a deferral rate of at least 3% of compensation, but no more than 15%. The maximum annual deferral is $6,000 (indexed for inflation), plus the annual IRA catch-up contribution of $1,000 for those age 50 or older. No actual deferral percentage (ADP) or top-heavy testing of the plan is required, reducing the compliance and cost burden for employers. Employers can impose age and service eligibility requirements, and employees may opt out. Employer contributions are not permitted.

Top-Heavy Rules

A defined contribution plan is top-heavy if the aggregate of accounts for key employees exceeds 60% of the aggregate accounts for non-key employees. Top-heavy plans must make nonelective minimum contributions up to 3% of a participant’s compensation. Starting in 2024, employers are no longer required to make the 3% minimum contribution to employees who do not satisfy the Internal Revenue Code’s minimum age and service eligibility rules (employees under age 21 and one year of service).

Expanding Penalty-Free Withdrawals

Typically, the law imposes a penalty on early withdrawals before normal retirement age from tax-preferred retirement accounts; however, SECURE 2.0 brought about changes that will expand what the Internal Revenue Service (IRS) may accept as penalty-free withdrawals:

• Emergency expenses – The IRS could allow a withdrawal of up to $1,000 to be exempt from the 10% tax penalty if it is for an unexpected and immediate financial need (limited to one withdrawal every three years).
• Survivors of domestic abuse – Retirement plan participants who have experienced domestic abuse may be able to withdraw up to $10,000 or 50% of their available retirement savings (whichever is less) without a tax penalty. Although not required, the money can be repaid within three years, which would allow the owner a refund on the income taxes paid.

403(b) Plan Hardship Withdrawals

Previously, 401(k) plans were permitted to make hardship distributions available from contribution sources and earnings, whereas 403(b) plans were limited to only contribution accounts. Beginning in 2024, the hardship distribution rules for 403(b) plans conform to those of 401(k) plans.

SIMPLE IRAs

Increases in the annual deferral limit to 110% of the 2024 SIMPLE IRA plan limit (as indexed) and the catch-up contribution limit at age 50 to 110% of the 2024 SIMPLE IRA plan limit (as indexed) have been made in the case of an employer with no more than 25 employees. Employers with 26 to 100 employees can offer these higher deferral limits if they provide a 4% matching contribution or a 3% employer contribution. Employers can now also make additional contributions to each employee in the plan. Additional contributions must be made in a uniform manner and cannot exceed the lesser of up to 10% of compensation or $5,000 (indexed for inflation) per employee.

Please contact us if you have questions about the information outlined above; our seasoned and experienced employee benefit plan professionals are here to help. You can also learn more on our Employee Benefit Plan services page.

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