While most of us were putting the final bows on holiday presents, on December 23 Congress passed the Secure 2.0 Act, with promises of adding tens of billions of dollars to retirement savings and offering new retirement plan features over the next decade. On December 29, President Biden signed the Act into law.
With nearly 100 different provisions potentially phasing in between 2023 and 2033, the new law will give employees and employers new tools and opportunities to build retirement (and emergency) savings. From plan rules and administration to tax credits and startup costs, Secure 2.0 will result in a broad swath of changes for a variety of plans – including 529 plans, IRAs, 401(k)s, 403(b)s, 457(b)s, SIMPLE plans, pension plans, employee stock ownership plans, and more.
In general, small employers, non-profit organizations and government agencies will have the opportunity to participate in plans previously available to large for-profit employers only. In fact, employers with 50 or fewer employees can get a tax credit for 100% of the cost of implementing a new retirement plan.
A number of penalties will be relaxed for certain eligible populations, while contribution and saving opportunities will increase (including catch-up contributions for participants over age 60). There are special provisions for private sector firefighters, part-time employees, seasonal employees, military spouses, survivors of domestic abuse, adoptive parents, first responders, domestic employees, and others. Administration of certain plan features will ease.
Here are highlights of just a few of Secure 2.0’s most notable features:
- Retirement plan minimum required distribution age increases to 73 (and later to 75).
- Lost and Found The Department of Labor must create a national, online, and searchable database enabling savers who may have lost track of vested retirement plan assets to search for plan administrator contact information.
- Employer matching based on student loan payments Under a 401(k), 403(b) or SIMPLE IRA, an employer may make matching contributions based on “qualified student loan payments.” (The same holds true for government employers in a 457(b) or similar plan.)
- Penalty-free early withdrawals for emergency expenses Unforeseeable or immediate financial needs relating to personal or family emergency expenses will be an exception to the 10% early withdrawal tax from tax-preferred retirement accounts.
- New emergency savings account linked to retirement plans Non-highly-compensated employees can be automatically enrolled for up to 3% in contributions (with a $2,500 cap).
- 529 Rollover to Roth IRA Under certain conditions, tax- and penalty-free rollovers from 529 accounts to Roth IRAs will be allowed. 529 college savings account beneficiaries will be able to rollover up to $35,000 over the course of their lifetime from any 529 account in their name to their Roth IRA, subject to Roth IRA annual contribution limits and if the 529 account was open for more than 15 years.
- Automatic 401(k) and 403(b) enrollment for new plans Employers must automatically enroll employees at a 3% minimum contribution but no more than 10%. Employees can opt out. Employers with less than 10 employees or in business for less than three years are exempt. (Stay tuned about how this may interact with NY regulations requiring private employers to automatically enroll employees in New York State’s Secure Choice Savings Plan.)
- Starter 401(k) Employers without a plan can offer a starter 401(k), with deferrals only, capped at $6,000.
RBT CPAs – and its affiliates – are available to help you understand what the new Act will mean to you, your business, and employees:
- Our Spectrum Pension and Compensation professionals specialize in serving the retirement needs of diverse companies, especially in the Hudson Valley and all major Northeastern urban centers. As a third-party administrator for clients ranging from sole proprietors to corporate plans, Spectrum professionals can help your organization with plan design; actuarial and recordkeeping; compliance services; and participant education.
- Our Visions Human Resources Services professionals support the entire employee life cycle and all related HR services, including benefit analysis, compliance audits, and more.
- Your RBT CPAs contact can help you understand potential accounting, tax, and audit implications.
As is the case with any legislation, we strongly recommend you consult the appropriate legal counsel. Watch for more information and updates in the days and weeks to come.