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 published guidance in IRS Notice 2024-2 which explains that governmental 457(b) plans may not make distributions eligible for the terminal illness penalty waiver. The Notice also provides details of the certification required from a doctor which must be provided to the plan in order to receive the penalty waiver.

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. 

The IRS issued IR-2024 providing FAQs about disaster relief related to qualified federally declared disaster distributions. which stated that plan sponsors may rely on a participant's representation that participant's principal place of abode in is the disaster area, and they sustained economic loss because of the disaster and also clarified that repayments are treated as an eligible rollover distribution.

If a participant's loss due to a disaster qualifies, they can take a distribution for up to 180 days after the latter of: 

• Effective date of the law (December 29, 2022)
• Date of the first incident
• 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 over 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. 

Starting January 1, 2024.

529 account owners can roll over funds from their plan into a Roth IRA for their plan beneficiary. Account owners who've had their plan for at least 15 years can roll over up to $35,000, subject to the Roth IRA $6,500 annual contribution limit. Any 529 contributions made within the last five years of the rollover initiation date are ineligible. The Roth IRA must be in the same name as the 529 plan beneficiary. 

Domestic abuse is defined as physical, psychological, sexual, emotional, or economic abuse. This could include efforts to control, isolate, humiliate or intimidate the victim, or to undermine the victim's ability to reason independently. It also includes by means of abuse of the victim's child or another family member living in the household. Guidance issued by the IRS in Notice 2024-55 allows self-certification by the participant if the distribution qualifies.

Participants may be permitted to self-certify that they experienced domestic abuse and may withdraw the lesser of $10,000, indexed for inflation each year after 2024, or 50% of the account's balance.

Distributions taken under the domestic abuse exception can be repaid to the same or a similar account over three years. Income taxes on repaid dollars will be refunded.

Yes. While income taxes could still apply, the 10% penalty is waived. Effective in 2024, a new exception is created for victims of domestic abuse that occurred within the previous 12 months by a spouse or domestic partner. 

Starting January 1, 2024, for 401(k), 403(b) and governmental 457(b) plans, an employer can make matching contributions on behalf of an employee who is making payments on their student loan debt. The student loan payment would be treated as an elective deferral for the purpose of making them eligible to receive an employer's matching contribution.

It provides an opportunity to create a retirement savings for employees who may have to choose between paying down their student loan debt or starting a retirement account. Otherwise, they may miss out on valuable employer matching contributions.

This may be considered a recruitment incentive for newly graduated employees. It could help in their decision when choosing an employer or district with which to work.

ESAs are set up on an after-tax Roth basis. This means the contributions are not deducted before taxes, but the earnings can grow tax-free and your qualified distributions are also tax-free. 

The most that can be contributed to an ESA is $2,500, or a lesser amount specified in the plan. This is not an annual limit, but the account maximum. ESAs are not available for highly compensated individuals. If the plan has an employer match, the match must be made on the ESA contributions up to the plan account maximum. The ESA contributions count against the employee's annual deferral limit.

No, there is not a minimum contribution. Participants must also be allowed at least one withdrawal per month and the first four withdrawals must be free.

The key benefits to an ESA are that the funds are deducted from the employee's payroll and the plan's matching contributions can apply to the amount contributed by the employee.

These emergency withdrawals do not have a 10% penalty tax:

• Disaster Relief (FEMA)
• Terminal Illness
• Emergency Expenses
• Domestic Abuse
• Death or Disability
• Substantially Equal Payments
• Unreimbursed Medical above 7.5% of AGI
• Birth or Adoption
• Active-Duty Reservist
• IRS Levies
• Withdrawing after age 59 ½
• Terminating employment after age 55
• Per a court order in a divorce or legal separation
• Withdrawals for certain public safety officers and firefighters
• First Time Home Buyer (IRA Only)
• Health Insurance Premiums (IRA Only)
• Qualified Higher Education Expenses (IRA Only)

An employer may mandate employees' cash out of their retirement plan if terminated and the retirement account balance is $7,000 or less. Employers subject to ERISA, must roll over this distribution into a default individual retirement account if the account balance is at least $1,000 and the participant has been notified and does not opt out.

That requirement has been eliminated for employer plans. There is now no age at which participants of these plans have to take distributions.

Currently, participants who are age 50 and older can contribute an extra $7,500 annually to their retirement account. Starting in 2025, this amount will increase to the greater of $10,000 or 150% of the regular catch-up limit in effect for that taxable year for participants who are age 60 to 63. These provisions will be indexed for inflation.

The required provision only applies to 401 (k) and 403(b) plans established after December 29, 2022. This requirement only affects plans that were not in place before December 29, 2022.

Yes. Companies who have been in business for less than three years, businesses with 10 or fewer employees, churches, public schools and governmental plans are excluded.

New retirement plans will be required to enroll employees at a rate of at least 3% but at most 10%. The contribution escalates at 1% per year up to a maximum of 15%.

Yes. Employers must permit part-time employees to participate in effective deferrals in their 401(k) plans if the employee has completed three consecutive years of 500 hours of service, disregarding service prior to 2021.

It applies to 401(k) and non-governmental 403(b) plans.

Participants whose wages for the prior year exceed $145,000. This amount is subject to future adjustments for inflation. 

This provision was previously planned to begin in 2024 but has been pushed to 2026.

Catch-up contributions must be made on a Roth basis for participants who are considered highly compensated for this rule. This means catch-up contributions for those considered highly compensated will be taxable.

Yes. The $145,000 income limit for catch-up contributions includes bonuses and is based on gross wages for FICA purposes.

The Achieving a Better Life Experience Act (ABLE) account is designed to help individuals with qualifying disabilities save and pay for disability-related expenses while not jeopardizing eligibility to continue receiving government benefits (Medicaid and Supplementary Security Income (SSI)), which are subject to applicable guidelines.

A family member may establish and contribute to a pre-tax savings account for a qualified disabled individual. Any earnings in the account are exempt from current tax. Contributions are not tax deductible. Examples of eligible withdrawals from an ABLE account are housing, higher education and basic living expenses.

Prior eligibility for ABLE accounts was limited to individuals with significant disabilities if the condition's onset occurred before age 26. SECURE Act 2.0 advances the age threshold by 20 years before age 46.

It's anticipated this change will be very beneficial to individuals with mental health issues and other disabling medical conditions and veterans who become disabled after age 26.

The distributions must be used to pay certified long-term care insurance premiums for an active employee, the employee’s spouse or any other family members allowed under Treasury regulations.

The coverage must provide meaningful financial assistance in the event the insured needs home-based or nursing home care. Long-term care insurance can be one of the following:  

• A qualified long-term care insurance contract under IRC Section 7702B
• A life insurance or annuity contract with a rider or other provision that covers qualified long-term care services and is treated as a separate long-term care insurance contract under IRC Section 7702B
• A life insurance contract with a rider or other provision providing accelerated death benefits to pay the costs of qualified long-term care services if the insured becomes chronically ill

Distributions may not exceed the lesser of:

• The premium paid by or assessed to the participant during the year
• 10% of the employee’s vested account balance
• $2,500 (indexed after 2024)

An employee who takes a distribution must file a long-term care premium statement with the plan administrator that includes the following information:

• Insurer’s name and taxpayer ID
• Statement that the coverage is certified long-term care insurance
• Identification of the employee as the owner of the coverage, the individual covered by the insurance and proof of the individual’s relationship to the employee
• Premiums owed for the calendar year
• Any other information the Treasury may require

Disability payments to first responders from retirement plans after reaching retirement age will now be excluded from income for tax purposes.

Currently, a retiree's disability benefit that is excluded from income under Code Section 104(a) loses its tax exemption at normal retirement age if the disability benefit converts to a normal retirement benefit. SECURE 2.0 establishes that in 2027, for first responders, the service-connected disability benefit under a pension or annuity retains its tax-exemption even if the benefit converts to a normal retirement benefit.

For tax years beginning in 2027, the government will provide a match of 50% up to a maximum of $2,000 into an IRA or an employer’s retirement plan. This match is subject to income limitations for those filing as single, married filing separately, and married filing jointly.