SECURE 2.0 includes more than 90 provisions in total—some mandatory, some optional—that are set to take effect throughout the next few years. A handful of the law’s provisions take effect in 2024, and here are a few important updates and reminders.
Roth catch-up contribution provision delayed
Last year, regulators issued a two-year administrative transition period for the implementation of the Roth catch-up contribution provision, which is now set to take effect January 1, 2026. Under this provision, participants ages 50 or older who earned more than $145,000 in FICA wages in the previous calendar year can only make catch-up contributions as Roth contributions.
Plans that don’t allow Roth contributions will need to add this feature to allow catch-up contributions of any kind after this date (including pre-tax catch-up contributions).
Regulators are expected to provide more guidance on this rule in the future.
Long-term part-time employee eligibility begins
As of January 1, 2024, LTPT employees—part-time employees who worked at least 500 hours in each of three consecutive years—are eligible to make elective deferrals to their 401(k) plan. And on January 1, 2025, the definition of LTPT employees will be changed to part-time employees who worked at least 500 hours in each of two consecutive years. And coverage is expanded to include 403(b) plans.
LTPT employee eligibility for 2024 is determined by tracking hours worked since January 1, 2021. The IRS issued a proposed regulation providing additional guidance on this provision.
Roth dollars excluded from required minimum distributions
As of January 1, 2024, Roth dollars are no longer subject to a required minimum distribution (RMD), nor will Roth dollars be included when calculating RMD amounts.
Vanguard’s approach to the long list of optional provisions
SECURE 2.0 includes a significant number of optional provisions with various effective dates. Vanguard is strategically prioritizing optional provisions based on three factors:
- Urgency: Optional provisions that either took effect upon enactment of SECURE 2.0 or have effective dates of January 1, 2023, and January 1, 2024.
- Desirability: The extent to which the optional provisions drive financial wellness and provide additional flexibility to plan sponsors and participants.
- Feasibility: How quickly the desired provisions can be adopted with minimal disruption to the plan sponsor and participant experience.
What else is on our radar?
Emergency savings: SECURE 2.0 created the option for plans to offer participants an emergency savings account. In the second half of 2024, Vanguard plans to introduce our proprietary non-retirement savings vehicle for participants, called Cash Plus. More details will be shared in the coming months.
Qualified disaster recovery distributions: This is a new type of distribution of up to $22,000 for participants affected by a federally declared natural disaster. It’s exempt from the 10% early withdrawal penalty tax and can be repaid within three years from the date of disbursem*nt. We began offering this option to plans on January 1, 2024.
Automatic cash-out limit increase: In the past, plans have immediately distributed and rolled over former employees’ balances that fall between $1,000 and $5,000. SECURE 2.0 gives plans the option to increase this limit from $5,000 to $7,000. We are giving plans the option to implement this change in 2024.
Learn more from our webinar
If you’re interested in a deeper dive into these topics, check out our recently recorded webinar. You’ll hear directly from Vanguard experts on the latest SECURE 2.0 updates, the most frequently asked questions from plan sponsors and consultants, and what to expect from us in the coming months.
