SECURE 2.0 provisions effective in 2023

Tax credits for small businesses to start a retirement plan. The act provides for a tax credit for companies with 50 or fewer employees for 100% of the startup and annual administration retirement plan costs for the first three years of a plan, up to a maximum of $5,000 a year. Tax credits can be received for employer contributions that go toward employees. These will match up to $1,000 per employee for employer contributions; they apply only to employees who make less than $100,000. These tax credits are available for the first five years of a new plan.
Support for small financial incentives to employees for contributing to a retirement plan. The act now allows for "de minimis" financial incentives to employees who contribute to the retirement plan. For example, an employer can incentivize new employees to sign up and start contributing to their retirement plans with a gift card.
Increased qualified longevity annuity contract (QLAC) maximum. `Current rules allow for up to 25% of a participant's retirement plan balance, or a maximum of $145,000, to go toward purchasing a qualified longevity annuity contract. The new rule allows for up to $200,000 to be invested in a QLAC. QLACs are very interesting and probably underutilized as retirement vehicles. You buy into a QLAC with a single premium (for example, a $100,000 purchase), then you decide when you want the deferred annuity to start. The longer you wait, the higher the annual annuity amount you will receive, with a maximum deferral age of 85. Here's a potential advantage: Funds invested in a QLAC are not subject to required minimum distribution calculations. This can be beneficial for participants with large retirement balances who don't expect to need to take large distributions from their retirement plan once they retire.
SECURE 2.0 provisions effective in 2024
Roth 401(k) RMD rule change. Prior to the Secure 2.0 Act, Roth 401(k) and 403(b) accountswere subject to RMDs, while Roth IRAs were not. This new rule will make Roth 401(k) and 403(b) balances not subject to RMD rules.
A new matching rule for employees who hold student loans. Employers will be able to adopt a new matching rule that acknowledges that some of their employees who are repaying large student loans are unable to make retirement plan contributions as well. This new rule would allow companies to count an employee's student loan payment as a retirement match — and make a matching contribution into their retirement plan for that employee.
Emergency savings provision. The Senate Finance Committee's research indicated that nearly 60% of Americans who have a retirement account and have no emergency savings have had to make withdrawals from their retirement accounts. As a result, the act would create an emergency savings account within retirement accounts that can hold up to $2,500. A participant can pull out $1,000 per year for emergencies tax-free — and they can repay those withdrawals to rebuild their emergency savings account in the future. These funds would be after-tax (like a Roth) so contributions would be after-tax, and distributions would be tax-free.
Changes to 401(k) catch-up contributions. Catch-up contributions will be increased significantly starting in 2024, but the rules will be more complex. Employees who are between 60 and 63 years old will be allowed a larger catch-up contribution of the greater of $10,000 or 150% of the "standard" catch-up contribution amount for 2024. (That amount is $7,500 for 2023.) The limit will be adjusted annually for inflation starting in 2026. Optional change:The employer match can go toward an after-tax Roth 401(k) portion. More complexities:If a participant is at least 50 years old and earned more than $145,000 in wages, any catch-up contributions to their retirement plan will only be allowed to go into their after-tax Roth account. If the person is at least 50 years old and makes less than $145,000, they can continue to make pre-tax catch-up contributions. Retirement plan platforms will need to add intelligence and processes into their systems to comply with this new rule, which is why there is a delay until 2024 to give organizations time to update their systems.
Changes to part-time employees' plan eligibility. Part-time employees' eligibility to participate in a company's retirement plan has been moved ahead from three years to two years, and the requirement for hours worked per year has been decreased from 1,000 to 500 hours a year.

Related: SECURE Act 2.0: Key changes for 401(k) plans in 2023

Taken altogether, the SECURE 2.0 Act's changes could have a meaningful effect on your company and your employees' retirement security. There are additional automatic enrollment and automatic escalation features that will be required for new plans in 2025, which will require additional planning.

SECURE 2.0 provisions effective in 2023

SECURE 2.0 provisions effective in 2024

Related: SECURE Act 2.0: Key changes for 401(k) plans in 2023

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SECURE 2.0 Act: 8 key provisions (and effective dates) for small businesses

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