salary deferral limits apply. If they do, the employer must match salary deferrals up to 4% of compensation (not 3%) or make nonelective contributions to all who are eligible — if this is the chosen form of employer contribution — of 3% (not 2%) of compensation. An employer may revoke an election for this higher deferral limit. Employer Matching Contributions for Student Loan Payments: SECURE 2.0 permits employers with a retirement plan that provides matching contributions for employee salary deferrals to make matching contributions based on qualified student loan payments. If a plan requires nondiscrimination testing of salary deferrals (401(k) plans do; 403(b), governmental 457(b) and SIMPLE IRA plans do not), those receiving such matching contributions may be tested separately. Normal plan vesting rules apply to matching contributions that are linked to student loan payments. Involuntary Cash-outs for Terminated Employees: Plan participants who terminate employment may be involuntarily “cashed out” of their former employer’s plan if their plan balance is small and if they do not specify an alternative distribution option. SECURE 2.0 raises the cash-out limit — formerly $5,000 — to $7,000. “Starter” 401(k) and 403(b) Plans: Employers that do not sponsor a retirement plan under which contributions are made, or benefits accrue, may establish one of these plans, whichever their organizational structure allows. Automatic enrollment at a rate of at least 3% of compensation (not to exceed 15%) is required, no employer contributions are permitted and annual deferrals are limited to $6,000 — $7,000 for those age 50 or older; both amounts are indexed for inflation. Pension-linked Emergency Savings Accounts in Employer Plans: Salary deferral-type employer plans — 401(k), 403(b), and governmental 457(b) plans — may permit participants to allocate up to $2,500 of salary deferrals to an accessible account that is not subject to standard distribution criteria, or the 10% early distribution penalty tax. The employer may set a lower contribution limit or not permit the option at all. Retroactive Amending to Increase Employer Contributions: Beginning with 2024 plan years, employers may amend their plans to increase employer contributions — other than matching contributions — as late as the employer’s tax return deadline, including extensions for the taxable year in which the amendment is effective. Permanence of Safe Harbor for Certain Plan Corrections: SECURE 2.0 makes permanent a temporary safe harbor for correction of certain retirement plan operational failures, which include failures in implementing a plan’s auto-enrollment or auto-escalation provisions, failure to follow an affirmative salary deferral election, or failure to allow an eligible employee to make a deferral election. If its conditions are met, the employer need not make a nonelective contribution for the missed deferral opportunity. Spouse Beneficiary Election to be Treated as the Participant: A spouse who is a plan participant’s sole beneficiary and who retains her inherited benefit in an employer plan may elect to be treated as the plan participant for required minimum distribution (RMD) purposes and — if RMDs are required — be subject to calculations using the Uniform Lifetime Table instead of the beneficiary Single Life Expectancy table. Provisions Affecting Both IRAs and Employer Plans Penalty-Free Distributions for Emergency Expenses: Individuals subject to the 10% early distribution penalty tax may take one penalty-free distribution per year for qualifying emergency events. The eligible distribution amount equals the lesser of $1,000 or an amount that equals the individual’s vested benefit (or IRA balance) minus $1,000. So unless the vested account balance or IRA balance exceeds $1,000, no emergency distribution is available. Such amounts may be repaid within three years. No additional distributions may be taken for emergency expenses within the following three calendar years unless the individual repays the original distribution — or makes contributions to an IRA or employer plan in an amount at least equal to the portion of the original distribution that was not repaid. Penalty-Free Distributions for Domestic Abuse: Domestic abuse victims who would otherwise be subject to the 10% early distribution penalty tax may take up to the lesser of $10,000 or 50% of their IRA or vested employer plan benefit penaltyfree. Amounts may be repaid within three years. (This is a new “triggering event” for employer plans in which a distributable event is not otherwise available.) Substantially Equal Periodic Payment Transferability: Individuals who have elected to receive substantially equal periodic payments from an IRA or employer plan in order to be exempt from the 10% early distribution penalty tax may transfer balances between IRAs and employer plans and remain eligible to take penalty-free distributions if the distributions continue on the previously-calculated schedule. Next Steps The IRS and DOL are expected to release additional guidance on multiple SECURE 2.0 provisions throughout the year. Ascensus will continue to follow any new guidance as it is released. Visit www.ascensus.com for the latest developments. 17 Colorado Banker
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