I am sure that most people have heard rumblings about changes coming to us for 401(k) and retirement plans. If not, then that is okay. Most of what is trendy takes a little while to settle into true application for the general public, and that takes even longer if it is 401(k) trendy.
If you are in the 401(k) industry, you have probably heard so much about this that it has become a monotonous drone at the back of your head. Let me add to that droning, but hopefully with succinct and digestible information.
The purpose of this article is to highlight what changes are immediately effective, what is on its way, and the future landscape we can expect from the recent SECURE 2.0 Act, which was part of the spending bill signed into law in December 2022.
Keep in mind, even if these changes are effective right now or in the near future, business owners may need to specifically adopt them into their 401(k) plan in order for them to directly apply. Also, there are many items in this legislation that I will not list here as they do not necessarily apply at the moment.
2023 Updates
Effective 2023
Effective 2023, federal SECURE 2.0 tax credits provide substantial relief for small businesses starting a new retirement plan:
- Startup Administrative Credit: Covers up to 100 percent of ordinary administrative and setup costs, up to $5,000 per year for the first three years.
- Auto Enrollment Credit: Provides an additional $500 per year for 3 years if you include an eligible auto enrollment feature.
- Employer Match Credit: Additional tax credits of up to $1,000 per employee to help offset employer matching contributions over the first several years (phases out by 25 percent each year for businesses with up to 100 employees, excluding employees making more than $100,000).
Additional 2023 updates include:
- Required Minimum Distributions (RMDs) are no longer required for Roth accounts.
- Financial incentives (de minimis amounts) can be provided to employees by an employer to help persuade employees to participate in the 401(k) plan.
- Employer match and non-elective contributions can be submitted as Roth.
- Reduce excise RMD tax from 50 percent to 25 percent.
- 403(b) Multiple Employer Plans (MEPs) now allowed.
- Hardship distribution documentation no longer required from participants through self-certification of financial need.
- Solo 401(k) plans can now make employee elective deferrals in the following year before filing taxes.
- The RMD age has been pushed forward to age 73 for those turning 72 in 2023 or later, and age 75 for those turning 74 or later.
- Disaster distributions allow up to $100,000 or 100 percent of an account, with early withdrawal penalties waived for requests under $22,000.
2024 Updates
Effective 2024
- Long-term, part-time employees who have worked at least 500 hours each year for three years are eligible to participate in the 401(k).
- Starter 401(k) plans are available to businesses with fewer than 50 employees as an employee deferral plan with no nondiscrimination testing and automatic enrollment between 3 percent and 15 percent.
- SIMPLE IRA and SIMPLE 401(k) plans can end mid-year and adopt a Safe Harbor 401(k) plan.
- Emergency distributions allowed up to $1,000 each year with no 10% early withdrawal penalty.
- Increased catch-up contributions for ages 60 to 63 ($10,000), while catch-up contributions must be Roth for employees making over $145,000+.
- Student loan payments can count as 401(k) deferrals to receive employer matching.
- Loosening top heavy testing rules and removing ownership control group requirements between spouses owning separate businesses.
2025 Updates
Effective 2025
- Automatic enrollment required for any employer starting a new 401(k) or 403(b) plan after December 31, 2024, with more than 10 employees and in business for at least three years (starting at 3 percent to 10 percent, escalating by 1 percent per year up to 15 percent).
- Long-term, part-time employee eligibility reduced to 500 hours each year for two years.
- Catch-up increases to the greater of $10,000 or 150 percent of the 2024 limit for ages 60 to 63.
2026 Updates
Effective 2026
- Required annual paper statement to be mailed to participants.
If these changes have made you consider starting a new 401(k) plan, or making updates to your existing plan, please visit our official Pricing Page or contact the team at 401GO. We would be happy to walk you through the process.