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Our financial planning process is an ongoing relationship because as you grow, your financial plan grows with you. At Sickle Hunter Financial Advisors, we believe that saving and making sound financial decisions will help improve your life’s changing needs and objectives. Retirement, college planning, wealth building, social security, and career benefit packets are only a few of the financial decisions that you may face in your lifetime and we’re here to help guide you.

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401k Update: IRS Issues Guidance for Retirement Plans with SECURE Act 2.0 Section 603

The Internal Revenue Service (IRS) has recently issued guidance concerning retirement plans’ compliance with Section 603 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0. This development is significant for both employers and employees operating under retirement plans like the popular 401k.

The SECURE Act 2.0, which was signed into law in 2021, includes a host of provisions aimed at improving retirement security for Americans. Section 603 specifically addresses various retirement plan procedures, including the adoption of eligibility and minimum age requirements, alterations to the plan’s vesting schedule, and clarifying the provisions for required minimum distributions (RMDs).

The newly released guidance from the IRS serves to help employers navigate the intricacies of implementing these changes while ensuring compliance with the law. This clarity is essential as it enables employers to make necessary adjustments to their retirement plans, ensuring they meet the new qualifying criteria stipulated in the SECURE Act 2.0.

One key aspect of this guidance revolves around eligibility and minimum age requirements. Previously, eligible employees could be excluded from a retirement plan if they were under the age of 21 or completed less than a year of service. However, Section 603 of the SECURE Act 2.0 introduced changes, removing the age restriction and lowering the minimum service requirement to three consecutive years of service with at least 500 hours worked each year.

The IRS guidance explains that employers can adopt these new eligibility and minimum age requirements retroactively for plan years starting after December 31, 2020. This means that employers can implement these changes without facing any penalties, ensuring more employees have access to employer-sponsored retirement plans.

In addition to eligibility requirements, the IRS guidance also addresses vesting schedules. The SECURE Act 2.0 extended the deadline for adopting a qualified retirement plan to the last day of the plan year. This provision allows employers to adopt a plan to make contributions that are deductible for a particular year, even if the plan is adopted after the end of that year.

Moreover, the guidance clarifies that employers can retroactively amend their plans until the due date of their federal income tax return, excluding extensions. This provides employers with greater flexibility and the opportunity to align their plan’s vesting schedules with the updated provisions of the SECURE Act 2.0.

The IRS guidance also addresses changes in required minimum distributions (RMDs). Previously, individuals were required to take RMDs starting at age 70½. However, the SECURE Act 2.0 increased the age for starting RMDs to 72, providing individuals with additional time to grow their retirement savings.

The updated guidance clarifies that employers have until the last day of the first plan year beginning on or after January 1, 2022, to adopt the changes regarding RMDs. As a result, employees will now have a longer period to enjoy the tax advantages associated with their retirement savings before they are obliged to take distributions.

In summary, the IRS guidance regarding Section 603 of the SECURE Act 2.0 provides employers with valuable clarity on how to implement the necessary changes to retirement plans while remaining compliant. By addressing eligibility and minimum age requirements, vesting schedules, and RMDs, this guidance ensures that employers can adapt their retirement plans effectively, ultimately benefiting their employees’ retirement security.

Employers should consult with retirement plan experts or tax advisors to understand the specific implications of the IRS guidance and its impact on their plans. It is crucial to ensure that all necessary steps are taken to comply with the updated provisions outlined in the SECURE Act 2.0. By doing so, employers can demonstrate their commitment to the financial well-being of their employees, helping them achieve a more secure retirement future.