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SECURE Act 2.0 Brings More Changes to Employer-Sponsored Benefit Plans in 2024 by Melissa Fleitas, CPA

Posted on February 29, 2024 by Melissa Fleitas

The SECURE Act 2.0, passed into law in 2022, aims to reform the nation’s retirement savings system, making it easier for workers to save for their golden years and simplifying the rules employers must follow to administer retirement benefit plans for their employees. Following are some of the law’s provisions that take effect on Jan. 1, 2024. You can read about the provisions effective on Jan. 1, 2023, at https://bit.ly/45j2L4x.

More Time to Adopt Plan Amendments

Employers may adopt discretionary amendments to their retirement saving plans that increase participant benefits by their tax return filing due date. Previously, amendments had to be signed by the end of the plan year they went into effect.

Introduction of Tax-Free Emergency Savings Accounts for Certain Employees

Effective for tax years beginning 2024, employers may offer non-highly compensated employees an emergency savings account (ESA) that plan participants may fund with salary-deferred Roth 401(k) contributions capped at $2,500 per year. Plan participants may take up to one withdrawal a month, but only the first four withdrawals each year are free of fees and penalties. An employee who separates from the employer may choose to cash out their balance penalty-free, move it to their Roth 401(k) or roll it over to or into a separate Roth IRA.

Higher Contribution Limits for SIMPLE Plans

The annual limits for salary deferrals and catch-up contributions to SIMPLE IRAs and SIMPLE 401(k) plans with 25 or fewer employees increase by 10 percent for plan participants age 50 and older. Employers with 26 to 100 employees may offer higher deferral limits when they provide a 3 percent employer contribution or a match of 4 percent of compensation.

Waivers of Early-Withdrawal Penalties Under Certain Circumstances

SECURE Act 2.0 provides several instances when qualified plan participants may take early distributions from their 401(k)s and IRAs without incurring the usual 10 percent early withdrawal penalty.

For example, plan participants facing a personal or family emergency with an “immediate and unforeseeable” financial need may withdraw the lesser of $1,000 or their vested account balance over $1,000 per calendar year without penalty beginning in 2024. Penalties are also waived for victims of domestic abuse, who can withdraw the lesser of $10,000 or 50 percent of their vested account balance. The timeline for repaying these early withdrawals back to their plans varies from one situation to the next.

Elimination of RMDs from Employers’ Roth 401(k)s

Effective for tax years beginning in 2024, participants in workplace Roth 401(k)s are no longer required to start taking required minimum distributions (RMDs) from those plans during their lifetimes. This follows the same rules for taxpayers with Roth IRAs, whose contributions of after-tax dollars can be withdrawn tax-free after age 59½.

Higher Dollar Limit for Involuntary Cash-Out of Separated Participants’ Accounts

Employers may transfer a former employee’s 401(k) account to an IRA when the 401(k) vested balance at the time of employee separation (after Dec. 31, 2023) is $7,000 or less, up from $5,000. The employer is not required to obtain the former employee’s consent to make this transfer.

About the Author: Melissa Fleitas, CPA, is an associate director of Assurance and Advisory Services with Berkowitz Pollack Brant, where she provides accounting, audit and consulting services to a wide range of companies in the healthcare, manufacturing and distribution sectors. She can be reached at the firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.