New Retirement Plan Options for 2024

Secure 2.0 Options May Require Plan Amendments

The SECURE 2.0 Act of 2022 sets forth a number of changes affecting retirement plans that go into effect for 2024 that may be implemented. Most are optional but there are some that are mandatory.

• Mandatory Distributions. Retirement accounts from a retirement plan to an individual retirement account (IRA) increased from $5,000 to $7,000, effective for distributions made after December 31, 2023.

• Withdrawals for Emergency Expenses. The act provides an exception for the additional 10% tax on certain distributions used for emergency expenses. Only one distribution is permissible per year of up to $1,000, and a participant has the option to repay the distribution within three years. No further emergency distributions are permissible during the three-year repayment period unless repayment occurs. This provision is effective for distributions made after December 31, 2023.

• Emergency Savings Accounts. Also known as a “Side-Car” to your retirement account. The act permits a plan sponsor to amend its plan to offer short-term emergency savings accounts (ESAs) as part of a defined contribution plan. ESAs must be funded post-tax with Roth contributions, and participants may be automatically enrolled at a rate of up to 3% of compensation. Contributions are capped at $2,500 (indexed for inflation) or a lower amount determined by the sponsor, and there cannot be minimum contribution or balance requirements. Participants must be allowed to take at least one withdrawal per month; the first four withdrawals per year cannot be subject to fees. These accounts may be established for plan years beginning after December 31, 2023.

• Withdrawals Relating to Domestic Abuse. The act allows retirement plans to permit participants to self-certify that they experienced domestic abuse and withdraw the lesser of $10,000 (indexed for inflation) or 50% of the participant’s account. The distribution is not subject to the 10% tax on early distributions. Additionally, the participant may recontribute the withdrawn money over three years and will be entitled to a refund for income taxes on money that is repaid. This is also effective for distributions made after December 31, 2023.

• Student Loan Payments as Deferrals for Matching Contributions. The act permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA with respect to “qualified student loan payments. For purposes of the nondiscrimination test applicable to elective contributions, the plan may test separately the employees who receive matching contributions on student loan repayments. This change is effective for contributions made for plan years beginning after December 31, 2023.

• Hardship Distributions in 403(b) Plans. The act conforms the hardship distribution rules for Section 403(b) plans to those of Section 401(k) plans. As such, a 403(b) plan may distribute qualified nonelective contributions, qualified matching contributions, and earnings on any of these contributions (including elective deferrals). Also, distributions from a 403(b) plan are not treated as failing to be made upon hardship solely because the employee does not take available loans. This change is effective for plan years beginning after December 31, 2023.

Depending on the form of the plan, these changes will likely require a plan amendment which must be sent to plan participants within 60 days of the effective date. Employers should check with their third-party administrators regarding implementation of the changes. Third-party administrators may not be able to implement all optional changes in 2024.

SECURE 2.0: Retirement Plan Changes for 2024 | Insights & Events | Bradley

Commentary by: Raylea Stelmach

Edited by: Kim Moss

EPSHRM provides content as a service to its readers and members. It does not offer legal advice, and cannot guarantee the accuracy or suitability of its content for a particular purpose.