As many surely recall, the SECURE 2.0 Act of 2022 included nearly 100 provisions affecting retirement plans. While a number of the new rules became effective immediately, another portion is scheduled to take effect in 2024. We have briefly highlighted many of them below.

The list of new rules may seem daunting—especially when added to the recent SECURE Act of 2019 amendments and the parts of SECURE 2.0 already in effect—but they generally are optional and don’t require plans to make mandatory changes.

If they have not done so already, plan sponsors should coordinate with their recordkeepers, third-party administrators, and other advisors to ensure all desired changes are implemented (and undesired ones are not). As a reminder, the deadline to amend plan documents for these rules is not until December 31, 2025, so plan sponsors need to keep good records of their elections so the eventual plan amendments will accurately reflect the plan’s operation.

Before turning to the SECURE 2.0 provisions that take effect in 2024, there are two related items that employers should be aware of heading into the new year:

1. Long-Term, Part-Time Employees. While this is a carryover from the original SECURE Act of 2019, the 2024 plan year is the first year in which “long-term, part-time” employees who work at least 500 hours in three consecutive years must be allowed to make elective deferrals to the plan. This means part-time employees with at least 500 hours of service in 2021, 2022, and 2023 must become eligible to make deferrals in 2024. Note that SECURE 2.0 further changed this rule by reducing the three-year requirement to two, but that further change does not take effect until 2025 (meaning a part-time employee with at least 500 hours of service in 2023 and 2024 will become eligible to make deferrals in 2025). Unlike many of the others below, this rule is mandatory.
2. Roth Catch-Up Contributions Delayed. The provision in SECURE 2.0 requiring certain highly paid employees to make Roth 401(k) catch-up contributions (instead of pre-tax) originally was scheduled to apply starting in 2024. However, to provide more time to sort out the administrative requirements involved (and provide IRS guidance on the same), the effective date has been delayed until 2026.

The following SECURE 2.0 changes will take effect in 2024:

1. Indexed IRA Catch-Ups. Catch-up contribution limits for individual retirement accounts will begin to increase annually for inflation. Currently, they are capped at a fixed $1,000.
2. Matching Student Loan Payments. Employers may begin making “matching” contributions based on employees’ student loan repayments (as opposed to matching employees’ deferral contributions to the plan).
3. Emergency Expense Distributions. Plans may choose to allow participants to take distributions of up to $1,000 for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses.” These emergency expense distributions would still be taxable, but would not be subject to the regular 10% early withdrawal penalty. The distributions may also be repaid to the plan within three years. Note that these emergency distributions are separate from the longstanding “hardship” distributions that plans may also offer.
4. Additional SIMPLE Contributions. Employers offering SIMPLE IRAs can voluntarily make additional nonelective employer contributions beyond the currently required employer contributions. Also, the deferral and catch-up limits for SIMPLE IRAs will increase for certain employees.
5. Starter 401(k) Plans. A new type of 401(k) plan called a “starter” 401(k) will be permitted. The starter 401(k) can only allow employee deferrals and has lower contribution limits.
6. In-Plan Emergency Savings Accounts. Prior to SECURE 2.0, some plans offered employees an “in-plan” emergency savings account. The rules surrounding these types of accounts, however, were not clear. SECURE 2.0 formalized them and required that the in-plan savings accounts be funded with employee Roth (after-tax) deferrals and limited to $2,500.
7. Cashout Limit Increased. The maximum account balance that a plan may “force out” without the participant’s consent will increase from $5,000 to $7,000. Any distribution over $1,000 that is forced out must still be transferred to an IRA for the participant.
8. Domestic Abuse Victim Distributions. Plans may choose to allow victims of domestic abuse to take limited in-service distributions without an early withdrawal penalty.
9. No More Roth 401(k) Lifetime RMDs. Before SECURE 2.0, Roth IRAs were exempt from the rules on required minimum distributions during the participant’s lifetime, but Roth 401(k) balances were not. In other words, once a person reached their RMD age during their lifetime, they would need to start taking Roth 401(k) distributions, but would not need to take Roth IRA distributions. Moving forward, Roth 401(k) balances are likewise exempt from the lifetime RMD rules. Note that, for both Roth 401(k) accounts and Roth IRAs, the RMD rules still apply after the participant’s death.
10. Replacing a SIMPLE IRA With Safe Harbor 401(k). Previously, SIMPLE IRA plans could only be terminated at the end of a calendar year; they could not be terminated during a year. Starting in 2024, a SIMPLE IRA plan can be terminated during a year if it is replaced with a safe harbor 401(k) plan.