SECURE 2.0: Catch-Up Contributions
With SECURE 2.0’s increased catch-up contribution limits set to take effect next year, it’s time for 401(k) plan sponsors to brush up on the rules and consider how to administer the changes. Under the current rules, 401(k) plans may allow participants to make catch-up contributions when they are age 50 or older. For 2024, the catch-up contribution limit is $7,500.
SECURE 2.0 creates a window of increased catch-up contribution limits for participants ages 60 – 63. Below are key questions 401(k) plan sponsors are asking about this change:
Are the changes mandatory?
Plan sponsors are not required to offer catch-up contributions. However, if a plan allows for catch-up contributions, it is important to check with the plan’s recordkeeper to determine whether or not opting out of the increased catch-up contribution limit will be permitted.
When do the changes take effect?
The new limits take effect for tax years beginning after December 31, 2024.
Which participants are eligible for the increased limit?
Participants are eligible for the increased limits for the years in which they attain ages 60, 61, 62, and 63.
What is the increased limit?
The increased catch-up contribution limit for eligible participants is the greater of: (a) $10,000, subject to cost-of-living adjustments starting in 2026; or (b) 150% of the limit in effect for 2024 (i.e., $11,250).
While the change seems straightforward, administration may be complex. For example, plan sponsors should consider how to track eligibility for the increased limits, in addition to tracking eligibility for regular catch-up contributions. Plan sponsors should also consider how to re-impose the lower catch-up contribution limits when participants age out of the higher limits. Employers may need to work with their payroll teams and update their existing processes (e.g., payroll codes) to implement these changes.
Finally, keep in mind that the increased catch-up contribution limits are separate from the SECURE 2.0 Roth catch-up rule for certain high-earning individuals, which the IRS delayed to 2026.
SECURE 2.0: RMDs
SECURE 2.0 brought significant changes to retirement planning and distributions, including updating the Required Minimum Distribution (RMD) requirements. As background, RMDs are the minimum amounts that individuals who attain their ‘required beginning date’ must withdraw from their retirement accounts each year.
SECURE 2.0 introduced several changes to the rules on RMDs, including the following:
Delaying the Age for RMDs
The age for starting RMDs has been raised from 72 to 73 years. This increased age provision phases in over time, with the final adjustment taking effect in 2033 to age 75. The change recognizes that many Americans are working and saving for retirement for longer periods, and the later distribution requirement allows for more flexibility in managing retirement assets.
No RMDs from Roth Accounts
Starting with the 2024 calendar year, participants are no longer required to take RMDs from their retirement plan Roth accounts. This change aligns the RMD rules for Roth accounts in retirement plans with the rules applicable to Roth IRAs.
Decreased Penalties for Missed RMDs
The excise taxes for failing to take an RMD have been decreased from 50% to 25% of the RMD amount not taken. The penalty may be further reduced to 10% if the RMD is corrected in a timely manner.