Secure 2.0 FAQs

Secure 2.0

• Do I Need to Add an Auto Enrollment Feature to My 401(k) Plan?

  If your business has 10 or fewer employees, no. Otherwise, beginning in 2025, all newly established 401(k) and 403(b) must include auto-enrollment for new employees. Initial deferral percentage must start between 3-10%, increasing by 1% annually until a max of 10-15%.

  Back to top

• Can Employees Opt-Out of Auto Enrollment in a 401(k) Plan?

  Yes, employees retain the right to “opt-out” of the auto-enrollment and auto-escalation features. If no investments are chosen by the employee, the new law requires their contribution be invested in the plan’s qualified default investment alternative (“QDIA”).

  Back to top

• When Do Required Minimum Distributions (RMDs) Begin?

  Any person who owns a retirement account and turns 72 on or after January 1, 2023 (date of birth 1/1/1951 or earlier) must begin taking RMDs at age 73. Participants must withdraw their first RMD by end of year in which they turn 73, with a one-time option to delay the first RMD until April 1 of the following year (Note: the second RMD would still be required to be taken by December 31 of the following year). Additionally, the beginning age for RMDs will rise to 75 in 2033.

  Back to top

• What is the Penalty Excise Tax for Missing a Required Minimum Distribution (RMD)?

  Beginning in 2023, the penalty for any under-distributed RMD amount is reduced from 50% to 25%. Additionally, if the shortfall is corrected before 2 years, the penalty is further reduced to 10%.

  Back to top

• Are Catch-Up Contributions Taken as Roth or Pre-Tax 401(k) Contributions?

  Participants earning less than $145,000 continue to be able to choose whether or not to treat catch-up contribution as Roth contributions. Beginning January 1, 2024, participants earning more than $145,000 will only be allowed to make catch-up contributions as Roth contributions.

  Back to top

• What Are the Catch-Up Contribution Limits?

  Beginning January 1, 2025, plan participants who turn age 60-63 in a given plan year will have an increased limit for catch-up contributions: the greater of $10,000 (indexed for cost-of-living increases beginning 2026) or 150% the age 50 catch-up limit (the age 50 catch-up limit for 2025 is $7,500).

  Back to top

• Who Counts as a Long-Term Part-Time (LTPT) Employee?

  Currently, any employee who worked 500+ hours in three consecutive 12-month periods (for periods of employment after January 1, 2021). Beginning January 1, 2025, any employee who works 500+ hours in two consecutive 12-month periods (for periods of employment after January 1, 2023).

  Back to top

• When Do Long-Term Part-Time (LTPT) Employees Enter 401(k) and 403(b) Plans?

  Long-Term Part-Time (LTPT) employees enter a 401(k) or 403(b) plan after they have met service and age requirements. An employee with 500+ hours in 2021, 2022, and 2023 became eligible to defer in a 401(k) plan starting in 2024 if they were 21 years old. SECURE 2.0 extended coverage rules to 403(b) plans, so an employee who works 500+ hours in 2023 and 2024 will become eligible to defer in a 401(k) or 403(b) plan starting in 2025 if they are 21 years old. (There is no guidance on continued applicability of current rules allowing 403(b) plans to exclude student employees and employees who work less than 20 hours per week.)

  Back to top

• Is Student Loan Matching Required for 401(k), 403(b), SIMPLE, and Governmental 457(b) Plans?

  No. Effective beginning January 1, 2024, employers who furnish these kinds of plans may optionally choose to provide matching contributions to employees based on their repayment of student loans.

  Back to top

• Can Matching and Employer Contributions Be Made as Roth Contributions?

  Yes. Effective December 29, 2022, employers who provide matching and employer contributions may now do so on a Roth basis. Employees will opt-in to treating their employer contributions as Roth contributions. This is optional for plan sponsors but may be a good addition to attract employees.

  Back to top

• Can I Retroactively Make Deferrals for a New 401(k) Plan?

  Yes. Under SECURE 2.0, a new rule extends the deferral period for sole proprietors who are starting new plans. Previously, a plan must have been established by December 31 of the taxable year in order to receive employee contributions. Now, sole proprietors and single-member LLC’s have until their tax filing deadline to establish a new plan. For instance, a business who files their 2023 taxes on April 15 could establish a plan on April 15, 2024 and make elective deferrals for both the 2023 and 2024 taxable years.

  Back to top

• How Did SECURE 2.0 Affect Hardship Withdrawals?

  Effective December 29, 2022, employees are now allowed to self-certify that they have a qualifying event for hardship withdrawal. This removes the burden from employers who previously needed to verify an employee’s eligibility.

  Back to top