At Rebalance, we strive to make investing and saving for retirement smoother, safer, and easier for our small business owner clients and their employees with our BetterK solution. The recent passage of the new Secure Act 2.0 aims to expand access to retirement plants, increase retirement savings, help Americans preserve income, and streamline retirement plan rules. This aligns with our BetterK investing philosophy and practice.

So, to say that we are excited that Congress finally passed this act—also known as the Consolidated Appropriations Act—is an understatement!

There are many noteworthy new provisions in this act that directly affect retirement savings plans, some of which are effective immediately and some which will become available next year, in 2024. To help employers understand these new provisions, we have broken down what is important to know at this given moment, and what to look ahead in the coming years, in the high-level summary below.

Effective Immediately (2023)

Roth Employer Contributions: Employers may now choose to offer matching or nonelective contributions as Roth contributions.

Small Incentives for Contributing to a Plan: Applaud good savings behavior by offering small rewards to employees who participate in a 401(k) or 403(b) plan. In the retirement industry, this is referred to as the “gift card” section.

Tax Credits: For new retirement plans, companies with up to 50 employees can claim up to $100 of the start-up administration costs (max $5,000). And for the employees who make less than $100,000, employers can claim an additional $1,000 per person, in which employers could apply the credit toward a matching contribution (max $50,000).

Available in 1 Year (Effective 2024)

Roth-Required Catch-Up Contributions: For employees over age 50 looking to max out retirement savings through catch-up contributions, if the employee earns more than $145,000, then those contributions are required to be Roth contributions. If the employee earns less than $145,000, they can choose either pre-tax or Roth contribution type. Reminder: 401(k) plans need to allow for Roth contributions in order for this to be available.

RMDs Not Required for Roth 401(k) and 403(b) Accounts: Retirement plan savings in a designated Roth 401(k) and 403(b) accounts are no longer subject to RMD rules. This means employees’ accounts can continue growing tax-free.

Emergency Withdrawals: An employee may claim a personal emergency and access up to $1,000 from their retirement plan.  They can take one distribution per year and have the option to repay it within three years. If repaid and they have another personal emergency expense, they can take another distribution. If not repaid within three years, they cannot take another distribution.

Matching Student Loans: For employees who are paying down student loans, employers will be able to apply the retirement plan’s matching formula to that repayment amount and deposit the match into the workplace retirement savings plan. This may help the employee save for retirement while getting out of debt.

Force-Out Rollover Limit: Under current law, employers may transfer former employees’ retirement accounts from a workplace retirement plan into an IRA if their balances are between $1,000 and $5,000. This section increases the upper limit from $5,000 to $7,000.

Automatic Portability: This provision makes it easier to move retirement accounts from a former employer to the new employer. By allowing for automatic portability, it helps to reduce future missing employee issues, supports employers with clean employee data, and helps employees consolidate retirement savings accounts.

“Side Car” Emergency Savings Account: This is a new payroll deduction account that is for short-term emergencies. Non-highly compensated workers could be automatically enrolled at 3% and can save up to $2,500 in this Roth account. They can access the account tax-and penalty-free.

Available in 2 Years (Effective 2025)

Improving Retirement Plan Access for Part-Time Workers: Long-term, part-time employees who meet the eligibility requirements will be allowed to save through the company’s retirement plan. For part-time employees, it is important to have a good time-tracking system in place because eligibility rules are retroactive. The stated eligibility rules are for employees who work for two consecutive 12-month periods during each of which they have at least 500 hours of service per year. Employers are not required to match contributions. Effective January 1, 2025.

Automatic Enrollment and Escalation/Retirement Savings on Autopilot: All new 401(k) and 403(b) plans are required to automatically enroll employees and auto-escalate savings. The employer will set the introductory 401(k) contribution amount between 3-10% and the contribution amount increases by 1% up to 10-15% retirement savings per year.

Higher Catch-Ups for 60 to 63-Year-Old Employees: Employees between 60 to 63 years old who are looking to maximize retirement savings will be allowed to increase their catch-up contribution to $10,000 in 401(k), 403(b), and governmental plans. For individuals who make more than $145,000, the catch-up must be a Roth contribution.

Available in 4 Years (Effective 2027)

Enhance and Promote Saver’s Match: As part of the mission of Secure Act 2.0, the Saver’s Match sections are designed to increase access to savings opportunities and to increase retirement savings. The Saver’s Match is built to help low-to-moderate income workers save more for retirement through a matching program. To qualify for the match, employees must be 18 years or older and make up to $41,000 but not more than $71,000. The U.S. Treasury Department to match 50% of their retirement plan contribution up to $2,000. Stated another way, the U.S. Treasury Department will put $1,000 in “free” money into that employee’s account.

The original program, called the Saver’s Credit, is available now. For more information, visit the IRS website.

Other Important Sections

Below are a few additional sections that are especially important for those thinking about adjusting their retirement plans in the future.

Age Increases for Requirement Minimum Distributions: Individuals can wait until age 73 (previously 72) to take a mandatory retirement savings withdrawal. Starting in 2033, the RMD age is increased to 75 years old. Effective immediately.

Military Spouses: Employers can claim up to a $500 retirement plan tax credit if they allow employees who are spouses of uniformed services to save through the company’s retirement plan. Effective immediately.

Starter 401(k) Plans: If an employer does not offer a retirement plan, there is a new barebones option. The plan only allows employee contributions. Eligible employees are auto-enrolled and the maximum savings amount is $6,000. This is similar to State IRA plans. Effective in 2024.

Required Minimum Distribution: Missing an RMD can cost older people greatly. New provisions reduce this pricey penalty from 50% to 25%, and if the failure is corrected in a timely manner, the penalty is reduced to 10%. Effective immediately.

Retirement Lost and Found: There will be a new national online searchable database to locate retirement accounts. Effective 2024-ish.

Expand Self-Correction Program: Allows for easier plan corrections of loans through the Employee Plans Compliance Resolution System (“EPCRS”). Effective immediately.

Self-Certify for Hardship Distribution: Employees may self-certify they are going through a hardship and need access to their retirement funds. Effective immediately.

Penalty-Free Withdrawals for Victims of Domestic Abuse: Domestic abuse survivors may withdraw the lesser of $10,000 or 50% of their retirement account. Effective in 2024.

Penalty-Free Withdrawals for Terminal Illness: Terminally ill individuals may withdraw retirement funds without being subject to the 10% early distribution tax penalty. Effective immediately.

Penalty-Free Withdrawals for Federally Declared Disasters: Permanent rules go into effect that allow up to $22,000 to be distributed from a retirement plan or IRA for affected individuals and are not subject to the 10% early distribution tax penalty. Retroactively effective to January 26, 2021.

Cash Balance Calculations: New rules clarify and cap the maximum interest rate at 6%, which will provide larger pay credits for older, longer service workers. Effective immediately.

To read more about the SECURE Act 2.0, and the 19-page Summary from the Senate Finance Committee, please click here.

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