SECURE 2.0 quarterly update
Regulatory roundup
Guidance on required provisions
IRS final and proposed regulations (issued July 2024)
Background
On July 19, 2024, the IRS published final regulations reflecting changes to RMDs made by the SECURE Act of 2019 (SECURE Act) and the SECURE 2.0 Act of 2022 (SECURE 2.0) clarifying a new 10-year rule regarding RMD withdrawals and inheritance issues.
Key takeaways
Final RMD regulations (effective January 1, 2025)
- 10-Year rule: The beneficiary of an Inherited IRA (whose original owner had already started taking RMDs) must continue to take RMDs annually. This means that the beneficiary will need to take an RMD each year based on the age that the deceased owner would have been that year. The entire IRA must be fully distributed by the end of the tenth year.
- Qualified annuity exception: This exception is applied in certain circumstances where the employee has passed away and the beneficiary made an irrevocable election regarding annuity payments before December 20, 2019.
Proposed RMD regulations (effective January 1, 2025)
- These regulations provide clarification on the RMD age for those born in 1959, RMDs for partially annuitized holdings, Roth-source RMDs, excise tax corrections, and spousal beneficiary RMDs, among others.
- Vanguard is currently modifying processes and workflows to comply with the new regulations effective January 1, 2025.
Treasury and IRS Notice 2024-73 (issued October 2024)
Background
The Treasury Department and IRS issued Notice 2024-73 on October 3, 2024, addressing long-term part-time (LTPT) employees in 403(b) plans beginning in 2025.
Key takeaways
Nondiscrimination rules for LTPT employees of 403(b) plans (effective January 1, 2025)
- This notice includes a Q&A section on the application of the nondiscrimination rules for 403(b) plans with respect to LTPT employees, including the handling of rules to permitted exclusions from participation for part-time employees and student employees.
Guidance on optional provisions
On August 19, 2024, the IRS released Notice 2024-63 to assist plan sponsors in implementing Qualified Student Loan Payment (QSLP) match programs. The Notice addresses many administrative issues to help plan sponsors and service providers get started with a QSLP program, including:
- General student loan matching contribution eligibility rules including dollar and timing limitations.
- Employee certification requirements.
- Reasonable student loan matching procedures that a plan may adopt.
- Special nondiscrimination testing relief for 401(k) plans, including safe harbor plans.
SECURE 2.0 updated the IRS Employee Plans Compliance Resolution System (EPCRS) by allowing plan sponsors to forego the reclaim of certain overpayments (i.e., “inadvertent benefit overpayments”). On October 15, 2024, the IRS issued Notice 2024-77, which provides clarification on inadvertent benefit overpayments, including:
- Defining what types of overpayments would qualify as an “inadvertent benefit overpayment” for purposes of the corrections described in EPRCS.
- Confirming that inadvertent benefit overpayments can be treated as eligible rollover distributions, as long as the distribution, would have otherwise been eligible for rollover.
- Clarifying that a plan sponsor may continue to seek recoupment of overpayments and providing guidance on the recoupment process.
- RMD final regulations.
- Roth catch-up contributions.
- Retirement savings lost and found database.
- Matching contributions for student loans.
- Technical corrections bill.
Reminder: Plan amendment deadlines
As 2025 nears, plan sponsors should review their plan documents to assess areas that require updates to ensure compliance now and in the years to come. At the end of 2023, IRS Notice 2024-2 extended the deadline for plan amendments relating to the CARES Act, the SECURE Act, and SECURE 2.0. Therefore, no mandatory amendments are due by the end of 2024. However, plan sponsors should decide if making certain amendments now (e.g., changes from the CARES Act of 2020) would make sense for their individual plans when it comes to operations and changes already implemented. While many SECURE 2.0 provisions have already taken effect, plan sponsors may want to consider waiting to amend their plans to accommodate future provisions and further government guidance.
Vanguard will continue to share the following important deadlines with you in 2025 and beyond:
