What You Need to Know About SECURE 2.0 in 2024

What You Need to Know About SECURE 2.0 in 2024 

Remember the SECURE 2.0 Act, the big retirement savings law signed in 2022? It brought a lot of changes to how retirement savings work, but some of them just kicked in this year. Let’s break down a few of the key updates that might impact you and your business. 

Required Minimum Distributions (RMDs) 

Previously, designated Roth 401(k) and 403(b) plans provided by employers were subject to annual required minimum distributions (RMDs) in the same way that traditional 401(k)s are. As of 2024, these designated Roth accounts are not subject to RMDs until the death of the owner. This means that funds can continue to grow tax-free within the account for a longer period. 

Employer-provided student loan relief.  

Younger employees with large amounts of student debt have sometimes missed out on their employer’s matching contributions to retirement plans. SECURE 2.0 tackles this catch-22 by allowing these employees to receive matching contributions based on their qualified student loan payments. Employers can make matching contributions to 401(k) plans or SIMPLE IRAs.  

This benefit can be a major selling point for employers when attracting and retaining younger talent, a demographic that often prioritizes student loan repayment alongside retirement savings. 

Section 529 Plan Rollovers 

Beginning this year, owners of certain 529 plans can transfer unused funds intended for qualified education expenses directly to the plan beneficiary’s Roth IRA. They can do this without incurring any federal tax or the 10% penalty for nonqualified withdrawals. 

• A beneficiary’s rollover amount is limited to a lifetime maximum of $35,000, and rollovers are subject to the applicable Roth IRA annual contribution limit. 
• Rollover amounts can’t include contributions made to the plan in the previous five years, and the 529 account must have been maintained for at least 15 years. 

New Starter 401(k) 

Maybe your company doesn’t currently offer a retirement plan. This can be a disadvantage for your employees, and make it harder to attract and retain top talent. SECURE 2.0 created a new option called a starter 401(k). This option makes it easier for employers to start a 401(k) plan. Here are some of the reasons:

• Automatic Enrollment: Employees are automatically signed up to participate in the plan, but they can always opt out if they choose. 
• Pre-set Contribution Rate: Starter 401(k)s come with a pre-set contribution rate, starting at 3% of an employee’s salary and going up to 15% (with an annual maximum). This makes it easy for employees to start saving without having to make complicated decisions about contribution amounts. 
• Reduced Burden for Employers: Unlike traditional 401(k) plans, starter 401(k)s have fewer administrative requirements for employers. This means less paperwork and hassle for you to get a retirement savings plan up and running in your business. 

More Flexibility with SIMPLE IRAs 

SECURE 2.0 boosts the annual SIMPLE IRA and SIMPLE 401(k) deferral limit and the catch-up limit to 110% of the 2024 contribution limits (indexed for inflation) for employers with 25 or fewer employees.  

Employers with 26 to 100 employees can offer the higher deferral limits if they provide a 4% matching contribution or a 3% employer contribution.  

Employers now can make additional contributions to each employee in the plan, as well. Additional contributions must be made in a uniform manner and can’t exceed the lesser of up to 10% of compensation or $5,000 (indexed for inflation) per employee. 

Early Withdrawals for Emergencies 

Needing to tap into your retirement savings for an unexpected emergency can be stressful. SECURE 2.0 introduced a new exception to the early withdrawal penalty. Now, you may be able to take out a penalty-free withdrawal from your retirement plan for certain emergency expenses. 

• These include “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” 
• Employees have three years to repay such withdrawals; no additional emergency withdrawals are permitted during the three-year repayment period, except to the extent that any previous withdrawals within that period have been repaid. 
• The withdrawals are otherwise limited to once per year. 

Changes to Top-Heavy Rules 

Have you heard of “top-heavy” retirement plans for businesses? Basically, these are plans where a larger chunk of the money belongs to a few key employees. Typically this are employees like owners or executives. In the past, if your plan fell into this category, there were some extra contributions you, as the employer, might have had to make for your other employees. This could add some unexpected costs. 

Starting in 2024, employers can perform the top-heavy test separately on excludable employees (those who are under age 21 and have less than a year of service) and non-excludable employees. The goal is to eliminate the incentive for employers to exclude employees from the plan to avoid the minimum contribution obligation. 

Saving for Emergencies Just Got Easier 

More than half of U.S. adults would turn to borrowing when confronted by an emergency expense of $1,000 or more, according to a Bankrate survey — a figure that has held steady for years. 

SECURE 2.0 introduced Pension-Linked Emergency Savings Accounts (PLESAs). Think of them like mini-savings accounts linked to your retirement plan, but for emergencies. They’re designed to help employees set aside money for unexpected bills without tapping into long-term retirement savings. Beginning this year, employers can offer PLESAs linked to employees’ retirement accounts. The PLESA is treated as a Roth, or after-tax, account. 

Learn more about PLESAs. 

Need Help Understanding What it Means for You? 

These are just some of the highlights of SECURE 2.0 that took effect in 2024. There’s a lot to unpack, and it can be confusing. It is important to note that not all of these may affect you or your business. Our team is here to help you navigate these changes!