Secure Act 2.0
What is Secure Act 2.0?
If you are a plan participant, a retirement plan sponsor or are thinking about sponsoring a retirement plan, then Secure 2.0 probably applies to you. You could spend more than a few minutes pouring over the material, or you can ask us. Let us help you digest this. There might be some good news in it!
The first applies to anyone that has retirement money (either in a 401k or an IRA). The age for required minimum distributions (RMDs) has been increased from age 72:
Born in 1950 or earlier, no changes
Born in 1951 to 1958: RMDs start at age 73
Born in 1959 or later: RMDs start at age 75
Small employers, especially those with less than 50 employees can now get a tax credit of up to 100% of plan admin costs, with an annual cap of $5,000, for the first three years of the plan. There is also an additional credit for employer contributions (except for defined benefit plans). The credit has a per-employee cap of $1,000. Not bad!
As part of Secure Act 2.0, plan sponsors of 401(k), 403(b) and governmental 457(b) plans can allow participants to designate the employer matching and nonelective contributions as Roth contributions. However, these contributions designated as Roth must be 100% vested when made and are not excludable from income. Yes, this is effective now, but your retirement plan provider may not yet have the systems in place to make the changes. AND, tax implications for participants are still unclear. But now you know, and this could be a big deal for your portfolio.
Are you getting close to retirement and feel like you are behind on your retirement savings? Secure Act 2.0 is going to allow you to make additional contributions! If you are age 60 to 63, you can contribute an additional $10,000 per year to your company plan. WAIT! This doesn’t go into effect until 2025. And there is a lot of fine print. But now you know, so you can plan ahead.
Employers can now provide a “de minimis” incentive to their employees to participate in their 401(k) or 403(b) plan. Hmmm… there is no dollar amount threshold given. Interesting. But NO, you can’t pay for it out of plan assets, and NO the money cannot be deposited into the participants retirement account. And YES, the incentive might be taxable to the recipient. But if you think your employees need a carrot…
Do you have a SIMPLE IRA or SEP plan at work? New this year as part of Secure 2.0, contributions can be made as Roth contributions. This is big news for high income earners who otherwise might not have their bucket of Roth money as full as they would like it to be.
Not quite yet…But effective in 2024, SIMPLE IRA contribution limits will go up! Employers with 25 or fewer employees – employees would have deferral and catch-up contributions increase by 10%. Employers with 25+ employees – current limits will be imposed unless they increase their matching contributions to 4%, or their regular contributions to 3%
Do you sponsor a SIMPLE IRA, but are thinking about converting it to a 401k plan? Did you know that you have to do that on the calendar year? If you are considering a conversion, you should probably start a conversation with your plan advisor now, so that you can get it done by Jan 1, 2024. OR, you can wait, because part of the Secure 2.0 Act now allows employers to replace SIMPLE retirement accounts with Safe Harbor 401k accounts during a year.
So… lots of updates with lots of different effective dates. We will continue to monitor updates that we receive. Any time that you have questions, please reach out to us.
