SECURE 2.0

SECURE 2.0 increases the required beginning age from age 72 to age 73 in 2023 for 457(b), 403(b) and 401(k) retirement plan participants and IRA owners who turn age 72 on or after January 1, 2023, and age 73 before January 1, 2033.
For employees who turned age 72 before 2023, the required beginning age is still age 72. 

Beginning January 1, 2033, the RMD age will increase to age 75. 

Prior law imposed an excise tax on a retirement plan participant if the amount distributed to an individual during a taxable year was less than the RMD for that year. The excise tax is equal to 50% of the shortfall.

SECURE 2.0:

• Reduces the excise tax for failure to take RMDs from 50% of the shortfall to 25%.
• Further reduces the excise tax to 10% if the participant corrects the shortfall during a two-year correction window. 

Under current law, RMDs are not required for the owner of a Roth IRA. However, RMDs are required for participants who have a Roth account in a 457(b), 403(b) or 401(k) retirement plan.

SECURE 2.0 eliminates the requirement that RMDs be taken from designated Roth accounts under a 457(b), 403(b) or 401(k) retirement plan during the participant's lifetime. RMDs will be calculated only on the participant's pre-tax account balance. 

Under current law, an employee can choose whether their age 50+ catch-up contributions to a 457(b), 403(b) or 401(k) retirement plan are made on a pre-tax or Roth basis.

SECURE 2.0 requires all age based catch-up contributions to 457(b), 403(b) or 401(k) retirement plan be made on a Roth basis for all employees whose wages (as defined for Social Security FICA tax purposes) for the preceding calendar year exceed $145,000 (indexed for inflation). Employees with wages below $145,000 for the preceding calendar year must be given the option (but are not required) to make catch-up contributions on a Roth basis.

             Age based catch-up contributions: 
             additional retirement plan contributions over the usual IRS maximum contribution limit for those age 50+.
             The 2023 additional contribution amount for those age 50+ is $7,500.
             Roth contributions:                           
             contributions that have already been taxed. 

What this means

• Employers must allow Roth after-tax contributions for employees after January 1, 2026
   
• In 2026, if an employee age 50+ exceeded the compensation threshold ($145,000) in the prior year and wishes to make age based catch-up contributions to their retirement plan, they must be made as Roth contributions. 
   
• Payroll departments/payroll providers will need to ensure contributions made above the IRS maximum contribution limit for those age 50+ are submitted as Roth contributions. 
   
• On an annual basis, we recommend you provide us with a file that lists participants who exceeded the prior-year compensation threshold ($145,000 in FICA compensation in 2023). With that information on file, we can provide meaningful warnings to your payroll department/provider. These warnings are intended to alert payroll representatives about instances where additional contributions need to be made as Roth. Later this year, we will provide more instructions letting you know how to remit such a file. 
   
• If you are not able to provide an annual file, we will provide only general warnings to your payroll department through the payroll reconciliation process for every age 50+ employee who exceeds the IRS maximum contribution limit. Your payroll department/provider will need to determine if an individual exceeded the compensation threshold in the prior year and is therefore required to remit additional contributions as Roth. 

Under prior law, a deferral change made by a participant in a governmental 457(b) plan did not take affect until the month following the month the deferral was requested.

SECURE 2.0 eliminates the first day of the month rule. Deferral elections can be made at any time (as with 401(k) & 403(b) plans).

Effective April 1, 2023, MSRS has adopted this provision. Employers may now remit MNDCP contributions as soon as administratively practicable.
Please See Sections 2.05, 2.08 and 2.12 of the MNDCP Plan Document.

Under current law, employees who have attained age 50 are permitted to make additional catch-up contributions of $7,500 (or $30,000 for 2023) under an employer retirement plan.

SECURE 2.0 increases the catch-up limit for participants age 60, 61, 62 and 63 to the greater of $10,000 (indexed for inflation) or 150% of the catch-up limit (e.g., current limit is $7,500; 150% equals $11,250).

Effective January 1, 2025 if a plan so adopts the provision.

Under current law, plan sponsors are not permitted to provide employer matching contributions in their 457(b), 403(b) and 401(k), retirement plans on a Roth basis. Matching contributions must be on a pretax basis only.

SECURE 2.0 allows retirement to provide participants with the option of receiving matching contributions on a Roth basis.

Effective whenever a plan so adopts the provision.