April 26, 2023
SECURE Act 2.0 Provisions Effective in 2024
The dream of a carefree retirement where individuals and families can spend more time together, travel to new places, or simply take it easy is quickly slipping away. The retirement savings gap, the difference between existing savings and future costs, continues to increase. In fact, the median retirement account balance is $3,000 for all working age households, and $12,000 for near retirement households. While Social Security is expected to provide a certain measure of relief, it will not be enough to prevent many from having to work well past the traditional retirement age. The reality is that workers will need to start, or increase retirement savings now, to provide the financial stability needed in the future.
Given the complexity of the issue and comprehensive changes needed, it was clear the additional Congressional action was needed. At the end of 2022, the SECURE Act 2.0 was passed as part of the Consolidated Appropriations Act of 2023. It calls for the introduction of new emergency saving accounts, starter 401(k) plans, student loan matching payments, and updates qualified charitable distributions. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details of provision effective in 2024 below.
Provisions Effective in 2024
- Starter 401(k) Plans – Starting in 2024, employers that do not sponsor a retirement plan to offer a Starter 401(k) plan. This plan type typically requires all eligible employees to be automatically enrolled at a 3% to 15% elective deferral rate but opt-out is available. Annual deferrals are limited to $6,000 with an additional $1,000 for catch up contributions. Starter plans are easier to administer because discrimination tests are considered to have been satisfied.
- Emergency Saving Accounts – Starting in 2024, employers that offer defined contribution plans can elect to offer an emergency savings account. It would be set up as a Roth account and able to accept participant contributions from non-highly compensated employees. Total annual contributions would be limited to $2,500 annually and the first four withdrawals in a year will be tax and penalty free. In certain cases, contributions could be eligible for an employer match.
- Early Distributions Penalty Free – There were several modifications to the type of early distributions which could be taken under certain circumstances. This includes distributions taken by terminally ill patients and covering the cost of long-term care insurance. Starting in 2024, participants that qualify as domestic abuse victims will also be able to take early distributions penalty free. The amount is equal to the lesser of $10,000 or 50% of the vested account balance.
- Deferral Failure Corrections – Managing a retirement plan can be a challenging proposition especially for small businesses. Starting in 2024, there will be a new grace period available to plan sponsors to correct errors in administering the automatic enrollment and escalation features. It is important to note errors must be resolved no later than 9 and half months after the end of the plan year in which mistakes were made.
- Student Loan Matching Payments – Also starting in 2024, employers will be able to match an employee’s qualified student loan payments with matching payments to a retirement account. A qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee. This change is designed to give workers the opportunity to save for retirement while paying off student debt.
- Qualified Charitable Distributions – Under current regulations, those older than 70 and a half can direct up to $100,000 in distributions for a traditional IRA to a charitable organization. Starting in 2024, the maximum contribution rate will increase as it will be based on inflation.
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The SECURE Act 2.0 has made significant changes to the retirement saving landscape to empower participation, expand saving opportunities, and make plan administration easier for employers. The changes coming in 2024 will help accomplish this goal. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
