Compliance Connection

The SECURE Act 2.0: What’s Changing?

Submitted by Ginger Huff, Arkansas State Manager, American Fidelity Assurance Co.

On December 29, 2022, SECURE 2.0 offered a follow-up set of provisions to the previously passed SECURE Act. These updates provide several changes over the next few years, mostly involving 403(b) and 457(b) plans. They are designed to make retirement savings more accessible, dependable and help create a more robust retirement system. Here are a few provisions already in effect or that will change soon.

2023:

• Required Minimum Distribution (RMD) age increased from 72 to 73.

• The penalty for failing to take an RMD decreased from 50% to 25%.

• The three-year eligibility rule for long-term, part-time employees is reduced to two years and is extended to 403(b) plans.

• Under 401(k), 403(b) or governmental 457(b) plans, employers may allow employees to designate their vested matching and nonelective contributions as posttax Roth contributions.

• If participants repay birth and adoption distributions, those must be paid within three years of the distribution date.

• Distributions for participants with a terminal illness will not be subject to the 10% withdrawal penalty.

• An emergency declared by Federal Emergency Management Agency (FEMA) is automatically a qualified event.

• A retirement plan may allow participants to self-certify they meet eligibility for specified hardship withdrawal reason from a 403(b) plan or specified unforeseeable withdrawal reason in a governmental 457(b) plan.

2024:

• Under 401(k), 403(b) or 457(b) plans, employers can treat student loan payments as elective deferrals.

• Participants above a certain income level making catch-up contributions will be required to designate them as post-tax Roth contributions.

• Victims of domestic abuse may withdraw $10,000 or 50% of their account balance, whichever is less, penalty-free.

• Participants with unused 529 accounts that have been in existence for 15 years or longer, can transfer them to a Roth IRA in the name of the 529 beneficiaries.

This is a partial list of all the provisions in SECURE 2.0. For more information on changes, visit our SECURE 2.0 FAQ page.