Secure Act 2.0 Information for Advisors

Key Takeaway

SECURE 2.0 was signed into law on December 29, 2022. At nearly 400 pages in length, SECURE 2.0 is a complex retirement reform package that includes many changes that will impact plan administration and employees’ saving habits. These changes have varying effective dates, and some are mandatory for plans to adopt, while others are optional.

This overview provides information about major SECURE 2.0 provisions for advisors to consider. While it is possible that regulations and guidance may change some of this information, this overview provides a breakdown of key provisions as they stand now, and incorporates guidance from IRS Notice 2024-2.

Provisions effective in 2023

Roth matching and non-elective employer contributions

  • Under prior law, employer matching and non-elective contributions were required to be made on a pre-tax basis.
  • Beginning January 1, 2023, SECURE 2.0 allows (but does not require) plans to give participants the option to elect these contributions made on a Roth basis.
    • If the plan allows Roth elections for employer contributions, they may only be made by employees that are fully vested in the relevant type of contribution.
    • Roth employer contributions are not considered wages for purposes of withholding . Therefore, employees who elect Roth employer contributions may have to increase withholding or make estimated tax payments to avoid an underpayment penalty.
    • These contributions are taxable to employees and must be reported using Form 1099-R for the year in which they are allocated, similar to if they were in-plan Roth rollovers.

Tax credit for startup plans – dependent upon employee count

  • Credit for Startup costs.
    • Employers with 50 or fewer employees – Tax credit of 100% of plan startup costs not to exceed the greater of (i) $500 or (ii) the lesser of (a) $250 for each eligible non-highly-compensated employee and (b) $5,000.
    • Employers with 100 or fewer employees – Tax credit of 50% of plan startup costs not to exceed the greater of (i) $500 or (ii) the lesser of (a) $250 for each eligible non-highly-compensated employee and (b) $5,000.
  • Credit for employer contributions to startup plan.
    • Employers with 50 or fewer employees.
      • Tax credit up to $1,000 per employee.
      • Phased out over 5 years (first 2 years full credit, then reduced by 25% each year thereafter).
    • Employers with 100 or fewer employees.
      • Credit phase out from 51 to 100 employees. (Phase out of 2% per employee over 50).
    • No credit for employees who earn more than $100,000
  • Includes PEPs. Above credits apply to employer that joins a multiple employer plan including a Pooled Employer Plan (“PEP”)

Tax credit for small employers providing benefits to military spouses

  • Employers with 100 or fewer employees may receive a tax credit equal to $200 per each military spouse employee in the plan and an additional credit of $300 for related employer contributions.
  • Must amend plan to include certain eligibility and benefit terms for military spouses.

403(b) PEPs

  • 403(b) plans can now form a PEP under rules similar to those previously applicable to 401(k) plans.

Changes to required minimum distribution (“RMD”) rules

  • RMD age 73 for 2023 to 2032. Individuals age 72 as of 12/31/22 remain under the old rules.
  • RMD age 75 as of 2033. Individuals age 73 as of 12/31/32 continue with age 73 rules.
  • Reduces excise tax for failure to take RMD from 50% to 25%, which can be further reduced to 10%.
  • Allows certain special needs trusts to be treated as designated beneficiaries.

De minimis financial incentives for plan participation

  • Permits small incentives ($250 or less) to be given to employees to start deferring to a 401(k) or 403(b) plan so long as the incentive is not paid from plan assets.

Clarifies audit requirements for a “group of plans” (not PEP) filing consolidated Form 5500

  • Prior law permitted a “group of plans” to file a single 5500 if they used the same trustee, plan administrator, plan year and investments. Questions arose regarding the scope of the audit if one employer met the definition of a “large plan.” New law confirms that only the “large plan” in the group must be audited and not every plan within the group.

Permits SIMPLE and SEP Roth IRAs

  • Will be permitted pursuant to Treasury Department guidance.

Provisions effective in 2024 and future years

New safe harbor for “starter” 401(k) and 403(b) plans (2024)

  • Employers with no plan can establish new type of safe harbor plan with deferrals only and automatic enrollment and escalations (unless employee opts out or opts different rate).

Matching contributions on qualified student loan payments (2024)

  • Permits plans to treat qualified student loan payments as elective deferrals for purposes of determining matching contributions.

Permitting emergency savings accounts within the plan (2024)

  • Permits plans to introduce emergency savings account feature inside the plan.

Increasing dollar limit for mandatory cash-outs (2024)

  • Increases limit for mandatory cash-outs from $5,000 to $7,000.

Roth catch-up contributions for participants with wages over $145,000 (2026 pursuant to IRS guidance)

  • Requires catch-up contributions for participants over wage limit to be made on a Roth basis and plans to accept Roth contributions if catch-up allowed.

Permitting automatic portability transactions (2024)

  • Creates prohibited transaction exemption for transfers from IRA to plan in certain circumstances if conditions satisfied.

Requiring new 401(k) and 403(b) plans to be set up with automatic enrollment feature (2025)

  • Applies to plans established on or after December 29, 2022.
  • Initial automatic contribution rate must be between 3%-10% and increase annually by 1% to at least 10% but not more than 15%.
  • Employees can opt out or opt to contribute less.
  • Exceptions for governmental employers, church plans, and certain new and small employers.

Higher catch-up limits (2025)

  • Increases catch-up contribution limit for participants ages 60-63.

Long-term, part-time employees (2024/2025)

  • The original SECURE Act required employers to offer “long-term, part-time” (LTPT) employees the deferral option in the plan beginning January 1, 2024. A LTPT employee is defined as an employee who has attained age 21 and worked at least 500 hours for three consecutive 12-month periods following the date of hire. Employers must count service beginning January 1, 2021. The employer is not required to provide a match or other employer contribution to the LTPT employees.
  • Beginning January 1, 2025, SECURE Act 2.0 reduces the service requirement from three to two years. Employers must count service for this purpose beginning as of January 1, 2023. In addition, these rules are now extended to 403(b) plans subject to ERISA.

Requirement to provide one paper statement per year (2026)

  • Creates requirement that certain participants be sent one paper statement per year unless they consent to receiving all disclosures electronically.