The age at which an individual is required to begin taking distributions from an IRA or a retirement plan:

New: The age for required minimum distributions (RMDs) is increased from 72 to 73 effective January 1, 2023, and then to age 75 starting January 1, 2033. In addition, the penalty for failing to take an RMD is reduced from 50% to 25% and then further reduced to 10% for IRA owners if the corrected RMD is completed within two years (subject to some limitations)

In addition, amounts subject to Roth after-tax treatment will no longer be subject to the required minimum distribution (RMD) rules prior to the participants death. This change is also effective for tax years beginning on or after January 1, 2023.

In addition, effective on or after January 1, 2024, a surviving spouse beneficiary may elect to be treated as the deceased employee for RMD purposes (as long as they are the sole beneficiary).

In addition, the penalty for failing to take an RMD is reduced from 50% to 25%. If correction is made within two years (subject to some limitations), the tax if further reduced to 10%. The section is effective for taxable years beginning on or after the date of SECURE 2.0’s enactment (December 29, 2022).

Effective date: Distributions made on or after January 1, 2023, for individuals who attain age 73 after 2023. Distributions made on or after January 1, 2033, for individuals who attain age 75 after 2033.

Plan types impacted: All plans and IRAs subject to required minimum distribution rules, including 401(k), 403(b), and 457(b) plans.

Automatic enrollment allows an employer to automatically deduct elective deferrals from an employee’s wages unless the employee makes an election not to contribute or to contribute a different amount. Any plan that allows elective salary deferrals (such as a 401(k) or SIMPLE IRA plan) can have this feature.

New: Beginning in 2025, any 401(k) plan or 403(b) plan established after December 29, 2022 a will be required to begin auto-enrolling participants with a salary deferral of at least 3% of salary, and no higher than 10%, and (for those who have not opted out of auto-escalation, or chosen another amount), escalate at 1% per year of service up to a minimum of 10% and maximum of 15%. An employee can opt out of the auto-enrollment and auto-escalation (small businesses, new businesses and government plans are exempted from the auto-enrollment provision.)

Effective date: Beginning in 2025, any 401(k) plan or 403(b) plan established after December 29, 2022 a will be required to begin auto-enrolling participants with a salary deferral of at least 3% of salary, and no higher than 10%, and (for those who have not opted out of auto-escalation, or chosen another amount), escalate at 1% per year of service up to a minimum of 10% and maximum of 15%. An employee can opt out of the auto-enrollment and auto-escalation (small businesses, new businesses and government plans are exempted from the auto-enrollment provision.)

Plan types impacted: 401(k) or 403(b) plan established after December 29, 2022. This requirement does not apply to government plans, church plans, new businesses that have been in existence for less than three years, or small employers that normally employ 10 or fewer employees.

Additional notes: Participant contributions made pursuant to this auto-enrollment feature would be invested into the plan’s qualified default investment alternative (QDIA) unless the participant elects otherwise.

Certain employer contributions made to a plan in connection with an employee’s repayment of student loans.

New: SECURE 2.0 allows employers to treat student loan payments as elective deferrals for purposes of providing an employer matching contribution to their 401(k), 403(b), and governmental 457(b) plans. The new rule allows for a once-a-year self-certification by an employee in order to receive the match.

Effective date: Plan years beginning on or after January 1, 2024.

Plan types impacted: 401(k), 403(b), SIMPLE IRAs, and governmental 457(b) plans.

Additional notes: Plans may also test the individuals receiving student loan matching contributions separately for purposes of the actual deferral percentage (ADP) test. Solely for purposes of satisfying a 401(k) Safe Harbor, student loan payments may be treated as elective deferrals.

A catch-up contribution is an elective deferral made by a participant aged 50 or older that exceeds a statutory limit or a plan-imposed limit which allows people aged 50 or older to make additional contributions to 401(k) accounts and individual retirement accounts (IRAs).

New: Beginning in 2025, the contribution limit for catch-up contributions for individuals ages 60-63 will be the greater of (a) $10,000 (indexed for inflation) or (b) 150 percent of the regular catch-up contribution limit. Currently, people who are age 50 and older can make catch-up contributions of $7,500 per year.

Effective date: Catch-up contributions made on or after January 1, 2025.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

New: Beginning in 2024, catch-up contributions will be Roth only for employees whose compensation was greater than $145,000 (indexed for inflation) in the prior calendar year. Plans that allow only pre-tax contributions must be amended to allow Roth catch-up contributions as well.

Effective date: Catch-up contributions made on or after January 1, 2026.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

Defined contribution plans allow for certain in-service distributions in which an employee takes a distribution from a qualified, employer-sponsored plan such as a 401(k) plan without leaving the employ of their company.

New: Beginning in 2024, SECURE 2.0 permits plans to allow a penalty-free emergency withdrawal of up to $1,000 annually with repayment permitted within three years. No further emergency distributions are permissible during the three-year repayment period unless repayment occurs. These emergency withdrawals would be permitted without application of the 10% penalty tax under Internal Revenue Code (IRC) section 72(t) for early withdrawals.

Effective date: Emergency withdrawals made on or after January 1, 2024.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

New: Beginning in 2024, SECURE 2.0 allows plans to permit domestic abuse victims to withdraw up to $10,000 without penalty. These distributions are not subject to the 10 percent early withdrawal tax (IRC Section 72(t)) and may be repaid over a three-year period. Plans may allow for self-certification that the individual experienced domestic abuse. The withdrawal is limited to the lesser of $10,000, indexed for inflation, or 50 percent of the account.

Effective date: Distributions made on or after January 1, 2024.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

New: Individuals with a terminal illness may also receive distributions from their retirement accounts without incurring the 10% penalty that normally applies to early distributions. An illness is considered terminal if a physician certifies that the illness is reasonably likely to result in death within 84 months. This is effective for distributions made after enactment of SECURE 2.0 (December 29, 2022.)

New: Effective for disasters after December 27, 2020, SECURE 2.0 permanently exempts plan “qualified disaster recovery distributions” (QDRDs) from the 10% penalty for early withdrawal when they meet the following conditions:

• The individual’s principal place of residence is in a federally declared disaster area
• The individual withdraws no more than $22,000
• The individual sustains an economic loss by reason of the disaster

The QDRD must be made within 179 days of the later of the (i) the first day of the incident or (ii) the date of the disaster declaration to qualify. A qualifying disaster-related distribution can be included in income over three years, or the individual can repay the distribution amount to the plan within three years. In addition to the QDRD, a participant may also borrow additional money from their account in excess of the normal maximum, via a plan loan provision. Where an individual experiences a QDRD they can borrow from the qualified plan up to a maximum of $100,000 or 100% of the vested account balance. Plan loan repayment periods for these individuals for existing loans are extended for one year.

Effective date: Effective for disasters occurring on or after December 27, 2020.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

New: Retirement plans may permit distributions up to $2,500 to pay for high quality long-term care insurance premiums. These distributions are exempt from the 10% early withdrawal tax.

Effective date: Distributions made on or after January 1, 2026.

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

New: Effective for distributions made after the date of enactment of SECURE 2.0 (December 29th, 2022), the repayment period for retirement plan distributions taken for qualified birth or adoption expenses is reduced to three years to align with statute of limitations rules applicable to refunds related to individual tax returns.

Effective date: Effective on or after December 29, 2022 (effective date of SECURE 2.0.)

Plan types impacted: 401(k), 403(b), and governmental 457(b) plans.

The Saver’s Credit is changed from a credit that is paid in cash as part of a tax refund to a federal matching contribution that must be deposited into the saver’s retirement account. The match is 50% of retirement contributions, up to $2,000 per individual, subject to phasing out at certain income levels.

Effective date: Effective for taxable years beginning on or after January 1, 2027.

SECURE 2.0 increases the small business start-up credit for employers with up to 50 employees from 50% to 100% and creates a new credit for plans other than defined benefit plans that is based on the amount of money contributed to participant’s accounts. The start-up credit is now also available for employers joining a Pooled Employer Plan (PEP) or Multi-Employer Plan (MEP).

Effective date: Effective for taxable years beginning on or after January 1, 2023.

PEPs may designate any named fiduciary (other than a plan employer) to collect contributions to the plan. The designated fiduciary must create written collection procedures.

Effective date: Effective for plan years beginning on or after January 1, 2023.

403(b) plans can now elect to be included in pooled employer plans (PEPs) or multi-employer plans (MEPs).

Effective date: Effective for plan years beginning on or after January 1, 2023.

The upper limit for employer-initiated transfer of former employee’s retirement accounts into an IRA is increased from $5,000 to $7,000.

Effective date: Effective for distributions beginning on or after January 1, 2024.

Employers may offer non-highly compensated employees emergency savings accounts in a retirement plan. Employers may automatically enroll those employees at no more than 3% of their salary. These contributions to employees must be capped at no more than $2,500. Contributions are made like Roth contributions and are treated as elective deferrals for purposes of matching contributions, with a matching contribution cap equal to the maximum account balance.

Effective date: Effective for plan years beginning on or after January 1, 2024.

SIMPLE IRAs and SEPs may offer employees the ability to treat contributions as Roth contributions.

Effective date: Effective for taxable years beginning on or after January 1, 2023.

Employer matching or non-elective contributions may be made on a Roth basis.

Effective date: Effective for contributions made after SECURE 2.0 enactment (December 29, 2022).

SECURE 2.0 shortens the required period for long-term part-time workers be allowed to participate in the employer’s 401(k) plan from three to two years for those working 500 or more hours.

Effective date: Effective for plan years beginning on or after January 1, 2025.

See SECURE 2.0 section of Regulatory Roundup for current information on RMDs.

Distribution timing for non-spouse inherited Individual Retirement Accounts (IRAs) and retirement accounts: 

Current: A non-spouse beneficiary of an inherited IRA or retirement plan account who elects timely can take distributions over his or her life expectancy. The plan document for a retirement plan may have special timing/rules. 

New: Limited to a maximum period of 10 years for the distribution of the account to be completed after the participant’s date of death. 

Effective date: Distributions due to the death of an owner/plan participant who dies after December 31, 2019. For collectively bargained plans, the effective date is January 1, 2022, unless the collective bargaining agreement terminates earlier. For governmental plans, the effective date is January 1, 2022. 

Plan types impacted: 401(k), 403(b), 401(a), and 457(b) governmental plans and IRAs. This does not apply to defined benefit plans. 

Note: There are exceptions to this 10-year rule if the individual is an “eligible designated beneficiary,” defined as: 
 

1. a surviving spouse, 
2. a child who has not attained the age of majority, 
3. a disabled individual, 
4. chronically ill, or 
5. not more than 10 years younger than the employee or IRA owner. 

In addition, this rule does not apply to a qualified annuity that is a binding contract as of the date of the enactment of the bill. This may be a significant change for financial professionals who have recommended in the past that non-spouse beneficiaries take advantage of the “stretch” provision in an IRA (which has been a good tax planning approach for a number of non-spouse beneficiaries).

New: 
 

1. Distributions up to $5,000 may now be taken for a qualified birth or adoption (QBA).¹  Plans may be amended to provide for QBA withdrawals, or a participant may elect to treat a regular withdrawal event as a QBA distribution. 
2. QBA distributions are not subject to the 10% early withdrawal penalty tax in Code Section 72(t). 
3. QBA distributions may be repaid as rollover contributions in a later year.

Under SECURE 2.0, QBA distributions taken on or after December 29, 2022 must be recontributed within three years of the distribution to qualify as a rollover contribution. In addition, distributions made between December 20, 2019 and December 29, 2022 must be recontributed before January 1, 2026 to qualify as a rollover distribution.

Plan types impacted: 401(k), 403(b), 401(a), and governmental 457(b) plans and IRAs.

Important: The $5,000 limit is aggregated across all plans of related employers. A withdrawal that meets the QBA distribution requirements will need to be identified for tax reporting purposes, as well as for future repayment purposes. We expect the Treasury to issue additional guidance regarding this repayment option/provision.
 

¹  To be a QBA, the distribution must be taken from the retirement account during the one-year period beginning with the date of birth or the date the adoption of an individual under the age of 18 is finalized. The distribution cannot be taken before the birth or adoption date. The $5,000 is a per-child limit, and each parent may use this provision in his or her own retirement plan or IRA. 

New: A participant in a safe harbor QACA plan may have their automatic contribution cap increased from 10% to 15%. 

Effective date: Plan years beginning after December 31, 2019. 

Plan types impacted: 401(k) and 403(b) plans using QACA. 

Note: An employer cannot use 15% in the initial period. The employer match or employer non-elective contribution (required under QACA) remains unchanged. This is an optional provision.

Current: An existing 401(k)/401(a) or 403(b) plan is required to adopt the safe harbor plan before the beginning of the plan year. Participants and beneficiaries are required to receive an annual safe harbor notice 30 – 90 days before the beginning of the plan year. As a current alternative, a plan using the 3% non-elective contribution safe harbor may provide a “maybe” or tentative safe harbor notice at the beginning of the year as long as it sends a follow-up notice at least 30 days prior to the end of the plan year to tell people it actually intends to elect to be safe harbor for that plan year. 

New: Employer may adopt a safe harbor plan using the 3% non-elective contributions any time at least 30 days before the close of the plan year. For example, a calendar year-end plan may elect to be safe harbor for that plan year by amending the plan by November 30 (i.e., before December 1) of a plan year. An off-calendar plan year ending June 30, 2021, may amend the plan by May 30 (before May 31) to be safe harbor. 

An employer can still adopt the safe harbor plan after that date if the non-elective contribution is increased from 3% to 4% and the plan is amended on or before the last day required for distributing excess contributions for that plan year (i.e., by the end of the following plan year). 

The annual safe harbor notice requirement for plans that use either of the non-elective contributions is eliminated. 

Plan types impacted: 401(k), 401(a), and 403(b) plans.
 
Effective date: Plan years beginning after December 31, 2019.  

Note: This provision allows additional time for a plan subject to ADP and/or ACP testing to adopt the safe harbor plan provision to avoid these tests. In order to take advantage of this “late” adoption, the safe harbor contribution must be an employer non-elective contribution. An employer match does not satisfy the safe harbor requirement for this exception to the timing rule.

Current: In a 401(k) plan, an employer may exclude certain part-time employees from eligibility if they have never been credited with 1,000 hours of service during a 12-month plan year. 

New: The new rules expand the eligibility rules for salary deferral purposes. In addition to the existing year of eligibility service rules, plans must allow an employee to become eligible if he or she is credited with 500 hours of service each year for two consecutive years. (SECURE 2.0 changed this requirement from three consecutive years to two consecutive years)

Current eligibility and allocation rules continue to apply for employer contribution purposes. In addition, nondiscrimination testing rules have been enhanced to exclude from nondiscrimination and top-heavy testing those employees who become eligible solely under the new long-term employee rules. 

Effective date: Plan years beginning after 12/31/2020 (service during 12-month periods beginning prior to 1/1/2021 is not taken into account). 

Plan types impacted: 401(k) plans only. Plan sponsors are not required to apply this rule to participants subject to collectively bargained plans or to nonresident aliens.

New: The plan sponsor may choose a lifetime income provider with protection from future liability for evaluating the insurer’s future claims-paying ability, when the insurer can make certain representations and warranties about its good standing with its regulator among other reps and warranties specifically outlined in SECURE. 

There is no requirement for a plan fiduciary to choose the lowest cost option, as various factors and attributes should be considered in the selection. As with other fiduciary duties, the plan sponsor should conduct periodic reviews of the provider. 

Effective date: Date of enactment. 

Plan types impacted: 401(k), 403(b), and 401(a) plans. Fiduciary relief applies only to ERISA plans.

New: This provision permits a defined contribution plan to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of a lifetime income option or distribution of a lifetime income option in the form of a qualified plan distribution annuity. These transfers or distributions are permitted if a lifetime income option is no longer authorized to be held as an option under the plan. 

Effective date: Plan years beginning after December 31, 2019. 

Plan types impacted: 401(k), 403(b), 401(a), and governmental 457(b) plans.

New: Defined contribution plans will be required to provide in participant benefit statements a lifetime income disclosure illustrating the monthly benefit payments the participant may receive based on his or her account balance. 

Plan types impacted: 401(k), 403(b), and 401(a) plans (only applies to ERISA plans). 

Effective date: Applies to benefit statements furnished more than 12 months after the DOL issues interim final rules, model disclosures, and assumptions.

New: A retirement plan that is entirely employer-funded (such as a profit-sharing or pension plan) may be adopted up to the due date (including extensions) of the employer’s tax return. 

Effective date: For plans adopted for tax years beginning after December 31, 2019. 

Plan types impacted: 401(a) plans, including both money purchase and profit-sharing plans.

Current: Related employers that do not have enough commonality or nexus are not considered a single plan. 
 
New: Two or more unrelated employers are allowed to join a Pooled Employer Plan (PEP). This eliminates the “one bad apple rule,” which previously could jeopardize qualified status of the MEP. (Additional guidance must be issued.) The designated pool provider is required to be the named fiduciary, must be responsible for ERISA Section 3(16) plan administrator duties, and must register with the DOL/IRS, among other requirements. Each adopting employer maintains the responsibility for selection and monitoring of the pooled plan provider or any other named fiduciary.

(SECURE 2.0 added 403(b) plans can also be MEPs and PEPs)

Effective date: Plan years beginning after December 31, 2020. 

Plan types impacted: 401(k), 401(a) and 403(b) plans.

Repeal of maximum age for IRA contributions – Individuals can now make IRA contributions after age 70½. Effective for contributions made for tax years after December 31, 2019. 

IRA compensation – non-tuition fellowship and stipend payments – Stipends and non-tuition fellowship payments made to graduate and postdoctoral students are now treated as compensation for IRA purposes. 

Effective for tax years beginning after December 31, 2019. 

“Difficulty of care payments” - Treated as compensation for purposes of IRA and defined contribution plan contribution purpose.² 

Effective date – Contributions made after the date of enactment; 415(c) changes are effective for plan years beginning after December 31, 2015.
 

²IRC 131(c)(1)(A)
 

Termination of 403(b) custodial accounts – Account termination may be retroactive for tax years beginning after December 31, 2008. This means a 403(b) plan that is holding individual custodial accounts can now be terminated using similar rules for distributing individual annuities.

Combined Form 5500 filing for a group of plans – The IRS and the DOL are directed to allow a consolidated Form 5500 filing for similar plans. The eligible plans must be defined contribution plans and must have the same: 
 

1. trustee, 
2. fiduciary, 
3. administrator, 
4. plan year, and 
5. investments or investment options. 

Effective date for implementation is no later than January 1, 2022 (applies to returns for plan years after December 31, 2021).