The SECURE Act 2.0 was signed into law on December 29th, 2022, and the legislation is introducing updates and changes affecting employer-sponsored retirement plans, many of which becoming effective in 2024. These amendments aim to enhance retirement savings opportunities for American workers and offer employers more flexibility in providing retirement benefits.
The SECURE Act 2.0 began taking effect in 2023, with changes to employer sponsored plans and require minimum distributions for retirees. The legislation will continue to alter the way Americans save for retirement with updates in 2025, 2026, and 2027. Continue reading below to find out what changes are in store for 2024.
Key Updates in SECURE Act 2.0
Indexing IRA Catch-up Limit (Sec. 108)
From 2024, the $1,000 annual IRA catch-up contribution for those aged 50 or over will be indexed for inflation in $100 increments, similar to the indexing for regular IRA contributions.
Student Loan Payments as Elective Deferrals (Sec. 110)
Starting in 2024, employers can make matching contributions to 401(k), 403(b), SIMPLE IRAs, and governmental 457(b) plans based on “qualified student loan payments,” enhancing retirement savings opportunities for employees with student debt.
Withdrawals for Emergency Expenses (Sec. 115)
The legislation permits one penalty-free withdrawal of up to $1,000 per year from retirement accounts for “unforeseeable or immediate financial needs” related to personal or family emergency expenses, effective in 2024.
Starter 401(k) Plans (Sec. 121)
In 2024, two new plan designs, a “starter 401(k) deferral-only arrangement” and a “safe harbor 403(b) plan,” will be introduced for employers without a retirement plan.
529 to Roth IRA Rollovers (Sec. 126)
Assets in a 529 college savings plan account maintained for at least 15 years can be rolled over to a Roth IRA for the beneficiary on a tax-free basis, starting in 2024.
Emergency Savings Accounts (Sec. 127)
Employers will now be allowed to offer short-term emergency savings accounts as part of a defined contribution plan, effective in 2024. The emergency savings accounts must be funded with post-tax Roth contributions with automatic enrollment options.
Updating Dollar Limit for Mandatory Distributions (Sec. 304)
The involuntary cash-out limit has increased to $7,000 from $5,000 in 2024, allowing employers to manage small balance accounts more efficiently.
Penalty-Free Withdrawal for Domestic Abuse (Sec. 314)
Penalty-free early withdrawals up to $10,000 or 50% of the vested account balance will be allowed for victims of domestic abuse in 2024.
SIMPLE to Safe Harbor 401(k) Switch (Sec. 332)
Employers will now be allowed to replace a SIMPLE IRA plan with a safe harbor 401(k) plan any time during the year, waiving the 2-year rollover limitation, effective in 2024.
While many changes introduced by the SECURE Act 2.0 take effect in 2024, it is important to note that not all retirement plan providers may be immediately equipped to implement these updates. These transitions can require substantial system updates by third party plan administrators and record keepers, a process that may not be instantaneous in all cases.
If you have questions about the availability of specific features or if you’re a business owner contemplating the initiation of a 401(k) plan, our dedicated 401(k) team at HFG Trust is prepared to assist. We’re here to guide you through understanding which are currently available and which ones make sense to implement in your company’s 401(k) plan.
Tyler Pearson, Wealth Planner
