Updated August 31, 2023
On December 29, 2022, the SECURE 2.0 Act of 2022 was signed into law. This law was designed to enhance retirement savings options and includes many significant changes to the Internal Revenue Code (IRC) provisions that govern 403(b) and 457(b) plans.
When Changes Take Place
The timeline below outlines what provisions become effective each year that impact 403(b) and 457(b) plans. Our FAQs area has more details about each one for 2023. We are evaluating the provisions for the following years and will update accordingly.
- Required Minimum Distribution (RMD) Age and Penalties
- Birth and Adoption Repayment
- Terminal Illness Distributions
- Federally Declared Disaster Qualifications and Distributions
- Governmental 457(b) Plan Contributions
- Hardship/Unforeseeable Emergency Withdrawals
- Employer Contributions as Roth Contributions
- 529 to Roth Rollovers
- Survivors of Domestic Abuse Distributions
- Student Loan Matching
- Emergency Savings Accounts and Distributions
- Additional Catch-Up Contributions
- Auto-Enrollment for Retirement Plans
- Catch-Up Deferrals for Highly Compensated Individuals
- Disability Eligibility Age Requirements for ABLE Accounts
- Qualified Long-Term Care Distributions
- First Responders Tax-Free Disability Pension Payments
Frequently Asked Questions:
January 1, 2023.
Retirees who turn 72 on or after January 1, 2023, may delay RMD distribution requirements until age 73. Retirees who turn 72 before December 31, 2022, are unaffected by this change. Retirees who met the RMD threshold in 2022, are unaffected by this change.
Yes, if the participant turned 72 in 2022, this change in the RMD rule, does not impact them.
Yes. The penalty has been reduced from 50% to 25%. Additionally, in certain cases, the penalty may be further reduced to 10% if corrected in a timely manner.
If the participant chooses to repay the distribution, they have three years from the distribution date. Any distributions made before December 29, 2022, must be repaid by December 31, 2025.
The 10% early withdrawal penalty will apply to qualified distributions after December 29, 2022, for those with a terminal illness.
The Secretary of the Treasury must publish guidance to outline what evidence a participant must provide to prove a terminal illness.
There are new qualifications for distributions and loans when the Federal Emergency Management Agency (FEMA) declares an emergency. Previously, FEMA could declare an emergency, but Congress had to pass legislation to approve the emergency as a distributable event in a qualified retirement plan. Now, if FEMA declares an emergency, it automatically makes it a distributable event.
If a participant's loss due to a disaster qualifies, they can take a distribution for up to 180 days after the latter of:
The effective date of the law (December 29, 2022), the date of the first incident and the date of disaster declaration from FEMA.
If a participant takes a qualifying federally declared disaster distribution after December 29, 2022, the 10% withdrawal penalty will not apply. There is also a waiver on the automatic tax withholding of 20%.
Distributions are limited to $22,000.
They will have three years from the distribution date.
They will be allowed to include the distribution as income over three years rather than one.
For example, if they make $32,000 and take the maximum distribution of $22,000, instead of claiming $54,000 for the tax year, they can break it up into three years potentially keeping them out of higher tax bracket.
The lesser of $100,000 or the greater of $10,000, or 100% of the vested balance.
Previously, contribution election changes could only be made effective on the first of the month. So, if a participant changed their contribution amount on the fifth day of a month, they could not see the new amount reflected on their paycheck until the following month. Now, if they make a change on the fifth day of the month, the new amount may be effective on the next payroll date.
In the past, the plan administrator was responsible for reviewing documentation to determine if a participant was eligible to take a withdrawal. Now, plan administrators may rely on a participant's written certification that they meet eligibility for specified hardship withdrawal reasons from a 403(b) plan or specified unforeseeable withdrawal reasons in a governmental 457(b) plan.
Participants can also now self-certify that the amount of distribution is not in excess of the amount required to meet their financial need.
Under 403(b) and governmental 457(b) plans, employers may permit participants to elect some or all of their vested employer matching or non-elective contributions to be designated as Roth contributions.
This means participants can be permitted to designate the matched funds to be pre-tax or after-tax Roth contributions.
Actions We Are Taking
American Fidelity is committed to thoroughly examining this new law and informing you and your employees of its impact on retirement plans. We are working to adjust our processes to comply with SECURE 2.0 and evaluating the 2024/2025 requirements to determine the necessary changes. We'll provide updates and help guide you along the way.
What You Should Do
You can take a few steps to ensure you are prepared for these changes.
- Educate your employees on the changes - We can help with this!
- Decide if you want to allow employer-match contributions to be designated as Roth contributions.
- Talk with your plan administrator to understand if the optional provisions are in your plan already and if you would like to start/continue to offer them.
Want a full breakdown of SECURE 2.0 provided by the United States Senate Committee on Finance?