Connections - 05.30.24

SECURE Act Provisions and IRS Tax Codes Affecting the 2024 Tax Year

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The SECURE 2.0 Act was signed into law in December of 2022 as part of a huge, year-end federal spending bill from Congress. Ultimately, SECURE 2.0 is aimed at providing employers with opportunities to expand plan coverage and simplify plan rules and administration. While many of its provisions will be effective only if adopted by the plan sponsor, some are mandatory and will go into effect this year. This article focuses on some of the provisions related to the Internal Revenue Code.

The good news is that, for those provisions requiring plan amendments, the IRS has provided a lengthy remedial amendment period, meaning that no plan amendment needs to be adopted for mandatory provisions until the end of the 2026 plan year.

Increased Contribution Limits for SIMPLE IRAs

Beginning in 2024, there is a 10% increase to salary deferral limits under Savings Incentive Match Plans for Employees (SIMPLE) IRAs. For plan sponsors with 25 or fewer employees, employers will be able to exceed the contribution limit to a 10% threshold above the original IRS limit without nuance.

SIMPLE IRA plan sponsors with 26–100 employees have to increase contributions to a 4% match and a 3% non-elective contribution to be able to take advantage of the enhanced salary deferral limit.

SIMPLE IRAs: Transitioning to Safe Harbor 401(k) or 403(b)

Before 2024, plan sponsors could not transition their SIMPLE IRA plans to a safe harbor 401(k) or 403(b) plan until the end of the calendar year. Employers are now permitted to switch to a safe harbor 401(k) or 403(b) plan at any time during the plan year.

RMD Increases, New Exceptions and Extensions

The first SECURE Act in 2019 increased the required minimum distribution (RMD) age—what’s called the required beginning date—from 70½ to 72. SECURE 2.0 increased that required beginning date to age 73 starting in 2023 and to age 75 beginning in 2033.

Up until the enactment of SECURE 2.0, designated Roth accounts in 401(k) and 403(b) plans were subject to the RMD rules, but Roth IRAs were not. After SECURE 2.0, amounts held in designated Roth accounts will not be taken into account when calculating an individual required distribution from a defined contribution plan.

For surviving spouses, Congress also reconciled the treatment of how surviving spouses must take RMDs from qualified plans with the rules for individual IRAs. Surviving spouses can elect to be treated as their deceased spouse when applying RMD rules. So, in certain situations, they could prolong the required taxable distributions from inherited accounts.

Catch-Up Contribution Limits Indexed to Inflation

SECURE 2.0 also indexed to inflation the amount of catch-up contribution permitted to IRAs by individuals age 50 and older. The catch-up limit is now $1,000 and is indexed to inflation.

Periodic Payments & Early Distributions

The SECURE Act also created a distribution option for early withdrawals that eliminates the 10% tax penalty through substantially equal periodic payments. If an employee were to take money out from a qualified plan prior to age 59½, they would have to pay income taxes on the withdrawal and a 10% penalty.

By taking equal periodic payments, some employees who are no longer with their employer can be exempt from the 10% penalty, provided that they maintain that payment schedule for five years and to the age of 59½.

For more on the SECURE Act provisions that plan sponsors should be aware of in 2024, both mandatory and optional, watch our Webinar.

We will continue to provide updates on timing and implementation. If you have questions, please contact Mutual of America Account Representative Steven Ortiz at [email protected] or visit our services page to learn more. This article is intended as educational material and should not be construed as or relied upon as legal advice.