What’s New for Retirement Plans in 2024

Answer: At the end of 2023, the government made significant changes to the 2019 SECURE ACT with the SECURE 2.0 ACT (Setting Every Community Up for Retirement). The year-end government funding bill contains legislation increasing the required minimum distribution (RMD) age, a shift to automatic plan enrollment, and provides for new matching/emergency withdrawal opportunities. Most of the key provisions go into effect beginning in 2024 and through 2025, but smaller adjustments, such as increasing the age to start required minimum distributions, were effective in 2023.

The new legislation intends to expand participation in retirement savings plans through mandatory enrollments, as well as increased flexibility in the individual use of advantaged savings accounts. The Act also pushes out the savings time limit before RMDs are required to age 75 by 2033 – an almost five-year increase from the original RMD distribution age.

Changes enacted by the legislation will be phased in over a multiyear period. They’re likely to boost the investment asset base through increased participation and interest in retirement savings plans.

Key changes phased in over multiple years period. 

The Act also features an allowance for matching contributions to be made for student loan payments (expanding the retirement savings of younger adults), higher catch-up limits for those ages 60-63, and opportunities for penalty-free withdrawals and lower penalties for missed RMDs that are corrected.

Eligible employees will soon be automatically enrolled into new employer-sponsored retirement plans. Under-the-radar provisions in SECURE 2.0 include an expansion of multiple employer plans (MEPs) and pooled employer plans (PEPs) to include 403(b)s, 529 to Roth IRA rollovers (to a maximum of $35,000). 

Here are more detailed descriptions of the key provisions in SECURE ACT 2.0:

• Higher RMD age: The RMD age increases to 73 in 2023 and 74 in 2030 and bumps to 75 in 2033.

• Matching contributions for employee student loan payments: Plan sponsors may make matching contributions to 401(k), 403(b), and simple IRA plans for qualified student loan payments made by employees effective 2024.

• Expanded emergency expense distribution allowances: Emergency distributions of up to $1,000 are permitted for unforeseeable or immediate financial needs relating to personal or family emergency expenses once per year, to be paid back within three years (effective 2024).

• Tax-free and penalty-free rollover from 529 to Roth IRA: Beneficiaries of 529 college savings accounts are permitted to rollover up to $35,000 from a 529 account in their name to a Roth IRA account. Rollovers are subject to IRA annual contribution limits and are available for 529 accounts that have been open for more than 15 years. Rollovers are permitted starting 2024.

• Reduced penalty for failure to take RMDs: The 50% tax penalty for failure to take RMDs is reduced to 25%. For IRAs, the tax is further reduced to 10% if corrected. Reduction is effective as of the bill’s signing.

• Higher catch-up contribution allowances. For those ages 60-63, the catch-up contribution limit is raised to the greater of $10,000 or 50% higher than the regular catch-up amount. The higher allowance is effective starting 2025.

• Emergency withdrawals for domestic abuse survivors: Emergency withdrawals for the expenses of individuals escaping domestic abuse situations are provided at the lesser of $10,000 or 50% of the value of the account, to be repaid over three years with a refund of income taxes paid on the repaid amount. Withdrawals permitted starting 2024.

• Emergency withdrawals for disaster relief: Withdrawals of up to $22,000 from employer retirement accounts or IRAs are permitted for individuals affected by a federally declared disaster. These emergency-related withdrawals are permitted for disasters occurring on or after January 26, 2021.

Stay focused and plan accordingly.