On December 29, 2022, President Biden signed the Consolidated Appropriations Act of 2023.  That spending package included the 358-page Setting Every Community Up for Retirement Enhancement Act, also known as SECURE 2.0, which builds  on the first SECURE Act which was passed at the end of 2019. 

While the act contains a large number of provisions, the highlights for Plan Sponsors are listed below:

  • Employers may allow employees participating in a 401(k) or 403(b) plan to choose whether to have employer matching or nonelective contributions be pre-tax or Roth.  Previously these contributions could only be pre-tax.  This begins with contributions made in 2023.
  • SIMPLE IRA’s can accept employee deferrals as Roth contributions effective 2023.  Previously SIMPLE deferrals could only be pre-tax.
  • Starting in 2024, employers will be able to “match” employee student loan payments with matching payments to a retirement account, giving workers an extra incentive to save while paying off educational loans.
  • At the employer’s choice, a SEP can offer employees the option to treat employee and employer SEP contributions as Roth contributions, starting in 2023.
  • Multiple exceptions to the 10% penalty for distributions from qualified retirements are provided for.
  • Beginning in 2024 plan sponsors may offer “Emergency Savings Accounts” as part of defined contributions plans.  ESA contributions are after-tax, and capped at $2,500.   Other restrictions apply.
  • Involuntary cashout from retirement plans increased to $7,000, from $5,000.  This means that employers can directly roll over a former participant’s retirement account to an IRA – without the employee’s consent = if the account balance is under $7,000.  This takes effect in 2024.

Any questions about the impact of these changes on your company’s plan, or how you can best take advantage of the updated rules, please let us know and we will find a time to discuss!