Be Aware of 401(k) Changes
The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) was signed into law in December of 2019. With the business disruptions in 2020, we want to make sure these important changes aren’t overlooked by your company, including:
Expansion of 401(k) eligibility for long-term, part-time employees.
- Prior to the SECURE Act, 401(k) plans could exclude employees from participating in the plan until the employees completed a “year of service” and a year of service was defined as 1,000 hours of service during a 12-month period. The requirement to complete 1,000 hours of service effectively excluded part-time employees from participating in 401(k) plans.
- Under the SECURE Act, 401(k) plans can no longer exclude employees who have completed at least 3 consecutive 12-month periods with at least 500 hours of service in each 12-month period. As a result, previously excluded long-term, part-time employees will now be eligible to participate in their employers’ 401(k) plans.
Adjustments to the required minimum distribution age from 70½ to 72.
- Prior to the SECURE Act, 401(k) plan participants were compelled to take required minimum distributions (RMD) starting on April 1st of the calendar year following the calendar year in which they reached age 70½.
- Under the SECURE Act, 401(k) plan participants are now compelled to take required RMDs starting on April 1st of the calendar year following the calendar year in which they reach age 72.
Broadening of 401(k) withdrawals.
- Prior to the SECURE Act, 401(k) distributions taken before a participant reached age 59½ were subject to a 10% early withdrawal penalty, unless an exception applied.
- An employer may amend its 401(k) plan to allow participants to withdraw up to $5,000, penalty-free, upon the birth or adoption of a child.
Removal of IRA age limit.
- Prior to the SECURE Act, individuals were not allowed to make traditional (after-tax) IRA contributions beginning with the year in which an individual reached age 70½.
- After the SECURE Act, there are no longer age-based restrictions on individuals who wish to make traditional (after-tax) IRA contributions.
The SECURE Act is an important piece of legislation that, in addition to the items outlined above, included numerous provisions related to employee benefits and retirement plans and accounts. If you have any questions concerning the SECURE Act or its potential impact on your 401(k) plan, please contact Mark Pieper at 402-829-1825 or firstname.lastname@example.org.
Wed Feb 17, 11:28pm Share