How Does The SECURE Act 2.0 Affect 401ks?

Posted on January 06, 2023

Our good friends over at Life, Inc. Retirement Services put together some great content around The Secure Act 2.0 and how it affects 401(k)s.

The SECURE Act was originally passed in December 2019, and was thought of as one of the biggest changes to the industry in decades.

In December of 2022, The SECURE Act 2.0 was put into law. It builds on the original legislation by adding dozens of changes and benefits to incentivize business owners and participants to save for retirement.

Some of the highlights are:

  • Significant tax credits to business owners.
  • Increased catch-up contributions and extended Required Minimum Distributions.
  • Permits matching contributions on qualified student loan payments.
  • Expanded hardship withdrawal access.
  • Easier access for part-time employees to plans.

To see how The SECURE 2.0 ACT will affect your retirement plan, connect with one of Life Inc’s 401k Experts to answer all your questions.

Summary of Changes – Applicable Year 2023

  • Increased tax credits to 100% of plan costs totalling $15,000 for first 3 years.
  • Small businesses with 100 or fewer employees will receive a new tax credit based on a percentage of employer contributions, up to $1,000 per employee.
  • Increases required minimum distribution age to 73 in 2023 and 75 in 2033.
  • Allows plans to provide participants with option of receiving employer matching/nonelective contributions on a Roth basis.
  • Allows small incentives to encourage employees to contribute to plan (i.e gift cards).

Summary of Changes – Applicable Year 2024

  • Permits matching contributions on qualified student loan payments.
  • Permits emergency savings account linked to plan (maximum of $2,500).
  • SIMPLE IRA plan sponsors can convert to a Safe Harbor 401(k) plan mid-year.
  • Implements a “Starter 401(k) Plan” option for employers without a plan. Similar contribution limits to an IRA, and doesn’t require employer contributions.
  • Increases involuntary cash-out limit for mandatory distributions to $7,000.
  • Expanded hardship withdrawal access to include domestic abuse and annual $1,000 for “unforeseeable or immediate financial needs”.

Summary of Changes – Applicable Year 2025

  • New 401(k) plans must include auto-enrollment (10 or more employees). Participants can opt out or elect different deferral percentage.
  • Reduces the 3-year eligibility limit for long-term part-time workers to 2 years (2 consecutive years of service with at least 500 hours of service).
  • Increases catch-up limit for participants ages 60-63 to the greater of $10,000 or 150% of regular catch-up amount (must be made on a Roth basis).

Summary of Changes – Applicable Year 2027

  • Saver’s Credit replaced by the Saver’s Match which will be deposited directly into participants’ accounts by the Treasury Department. It’s similar to the credit with income phase-out limits and starts at 50% up to $2,000.

Again, to see how The SECURE 2.0 ACT will affect your retirement plan, connect with one of Life Inc’s 401k Experts to answer all your questions.

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