Some big changes to 401k plans were announced recently.
We wanted to take a moment and send you a quick note that we are aware of, and are working through, the changes that were announced as part of the Secure Act 2.0 which may affect the 401k plan.
As with most changes to the tax code, it will take some time for the IRS to release guidance on how to handle new rules. We can discuss more on how these changes affect your plan, either by phone or by setting a new, or already scheduled plan review.
Some key updates as part of the Secure Act 2.0:
- Starting in 2023
- SEP IRAs and Simple IRAs will offer a Roth investment option.
- Starting in 2024
- Employees can choose for their employer matches to be deposited as a Roth 401k.
- Employers can help workers make student loan payments in lieu of a 401k match.
- Roth 401k’s are no longer required to send out RMDs for workers over age 72.
- The catch-up contributions ($7,500 for 2023) will be required to be a Roth contribution for prior-year wage earners less than $145,000.
- The new Starter 401k plan is established for small businesses.
- Part-time worker eligibility rules are changing down to 500+ hours after 2 years to qualify for employee plan enrollment.
- Starting in 2025
- Additional catch-up contributions for ages 60-63 increased to $10,000 or 150% of pay.
- Auto-enrollment is required for certain new employer retirement plans.
As a reminder, there is no such thing as free money, and many of these changes will affect how taxes are allocated and payroll taxed. There’s a lot of work ahead for the IRS, so we will keep you updated as guidance is announced.
Here is a good article posted by Barron's that outlines in a little more detail.