Saving for retirement can feel overwhelming, so much so that some people may avoid thinking about it altogether. SECURE 2.0, which became law at the end of 2022, is intended to help more people catch up on their savings and prepare for retirement. SECURE 2.0 includes many provisions that expand participant coverage, help participants preserve income and simplify plan rules and administrative procedures.
Here are the details about SECURE 2.0 and some of the ways it might affect you. Please be advised that you do not need to take any action for these changes to go into effect. ADP TotalSource Retirement Savings Plan will implement these changes by the required effective date. This list includes highlights but is not intended to be an exhaustive list.
|
What’s changing |
What it means for you |
||||||
|
Required Minimum Distributions (RMD) Age Increases The required age for an RMD beginning date is delayed for participants and spousal beneficiaries of a participant that died prior to reaching the RMD beginning date. New RMD ages are:
|
Impact: Mandatory It allows participants to keep their savings in their retirement plan for a longer period. Effective date: Calendar years after December 31, 2022 |
||||||
|
RMD Excise Tax Reduction The Internal Revenue Code imposed a 50% excise tax on RMD’s that were not taken in a timely manner. SECURE 2.0 reduces the excise tax from 50% to 25% (and to 10% if the correction is made in a timely manner). |
Impact: Mandatory Lower penalties allow participants to preserve more of their retirement income. Effective for taxable years beginning after December 29, 2022 |
||||||
|
Roth Plan Distribution Rules Required Minimum Distributions (RMDs) to a plan participant from a 401(k) account previously had to consider all amounts (both non-Roth and Roth). SECURE 2.0 eliminates the RMD requirement for Roth 401(k) accounts during the participant’s lifetime. |
Impact: Mandatory Allows participants to preserve retirement account balances. Effective date: Tax years after December 31, 2023 |
||||||
|
Surviving Spouse Election to be Treated as Employee (for RMDs) If a participant dies before his or her required beginning date and had designated their spouse as the sole beneficiary, then the spouse may make an irrevocable election to be treated as the participant for purposes of RMDs, including use of the Uniform Life Table for calculating the spouse’s RMD. The spouse may receive the entire account by 12/31 of the calendar year containing the 10th anniversary of the participant’s death or may receive distributions over the spouse’s life expectancy beginning no earlier than the date that the deceased participant would have attained the RMD beginning age. |
Impact: Mandatory The spouse may elect to defer RMD to a later date and have RMD calculated under a potentially more favorable life expectancy table. Effective date: Calendar years after December 31, 2023 |
||||||
|
Increase in Small Balance Mandatory Distribution Threshold The dollar amount which a plan may authorize a distribution of a terminated participant’s vested account without the participant’s consent increases from $5,000 to $7,000. |
Impact: Optional Increase the small balance mandatory distribution limit from $5,000 to $7,000 for inactive and dormant accounts in plans. Effective date: Distributions after June 30, 2024 Although this is optional, the ADP TotalSource Retirement Savings Plan is adopting this provision. |
||||||
|
Automatic Enrollment and Increase for New Plans Eligible Automatic Contribution Arrangement is required for 401(k) and certain 403(b) plans established on or after December 29, 2022. Such plans must automatically enroll eligible participants using an initial 3% minimum and 10% maximum contribution rate. Each year thereafter, that percentage must automatically increase by 1% up to 10% of eligible compensation. Eligible participants may opt out of the automatic contribution, automatic increase or elect another percentage to be deferred into the plan. The plan must permit a participant to make withdrawals on eligible automatic enrollment contributions no later than 90 days after the date of the first automatic enrollment contribution. |
Impact: Mandatory Effective date: Plan years after December 31, 2024 |
|
What’s changing |
What it means for you |
||||||
|
Required Minimum Distributions (RMD) Age Increases The required age for an RMD beginning date is delayed for participants and spousal beneficiaries of a participant that died prior to reaching the RMD beginning date. New RMD ages are:
|
Impact: Mandatory It allows participants to keep their savings in their retirement plan for a longer period. Effective date: Calendar years after December 31, 2022 |
||||||
|
RMD Excise Tax Reduction The Internal Revenue Code imposed a 50% excise tax on RMD’s that were not taken in a timely manner. SECURE 2.0 reduces the excise tax from 50% to 25% (and to 10% if the correction is made in a timely manner). |
Impact: Mandatory Lower penalties allow participants to preserve more of their retirement income. Effective for taxable years beginning after December 29, 2022 |
||||||
|
Roth Plan Distribution Rules Required Minimum Distributions (RMDs) to a plan participant from a 401(k) account previously had to consider all amounts (both non-Roth and Roth). SECURE 2.0 eliminates the RMD requirement for Roth 401(k) accounts during the participant’s lifetime. |
Impact: Mandatory Allows participants to preserve retirement account balances. Effective date: Tax years after December 31, 2023 |
||||||
|
Surviving Spouse Election to be Treated as Employee (for RMDs) If a participant dies before his or her required beginning date and had designated their spouse as the sole beneficiary, then the spouse may make an irrevocable election to be treated as the participant for purposes of RMDs, including use of the Uniform Life Table for calculating the spouse’s RMD. The spouse may receive the entire account by 12/31 of the calendar year containing the 10th anniversary of the participant’s death or may receive distributions over the spouse’s life expectancy beginning no earlier than the date that the deceased participant would have attained the RMD beginning age. |
Impact: Mandatory The spouse may elect to defer RMD to a later date and have RMD calculated under a potentially more favorable life expectancy table. Effective date: Calendar years after December 31, 2023 |
||||||
|
Increase in Small Balance Mandatory Distribution Threshold The dollar amount which a plan may authorize a distribution of a terminated participant’s vested account without the participant’s consent increases from $5,000 to $7,000. |
Impact: Optional Increase the small balance mandatory distribution limit from $5,000 to $7,000 for inactive and dormant accounts in plans. Effective date: Distributions after June 30, 2024 Although this is optional, the ADP TotalSource Retirement Savings Plan is adopting this provision. |
||||||
|
Automatic Enrollment and Increase for New Plans Eligible Automatic Contribution Arrangement is required for 401(k) and certain 403(b) plans established on or after December 29, 2022. Such plans must automatically enroll eligible participants using an initial 3% minimum and 10% maximum contribution rate. Each year thereafter, that percentage must automatically increase by 1% up to 10% of eligible compensation. Eligible participants may opt out of the automatic contribution, automatic increase or elect another percentage to be deferred into the plan. The plan must permit a participant to make withdrawals on eligible automatic enrollment contributions no later than 90 days after the date of the first automatic enrollment contribution. |
Impact: Mandatory Effective date: Plan years after December 31, 2024 |
If you have questions, please contact your dedicated ADP TotalSource 401(k) Specialist at 844-448-0325.
