IRS/Treasury guidance addresses open issues related to SECURE 2.0 Act

The IRS addressed several open issues related to the SECURE 2.0 Act in its Notice 2024-2 released December 2023.

  • Section 604 of SECURE 2.0 permits employees to designate employer matching contributions or employer nonelective contributions as Roth contributions. The changes made by section 604 technically apply to contributions made after December 29, 2022.
  • The Notice clarifies that this is an entirely optional provision that employers may choose to add to their plan design and addresses vesting, wage withholding, FICA and FUTA and taxation year of the Roth amount.
  • Section 113 of SECURE 2.0 exempts “de minimis” financial incentives from the contingent benefit rules applicable to 401(k) and 403(b) plans if certain conditions are met. Among other guidance, Notice 2024-2 provides that a de minimis financial incentive may not exceed $250 in value, and that contingent installments of the incentive (up to a total of $250) may be provided.
  • The Notice clarifies that there is no in-service relief in SECURE 2.0 for these distributions.
  • Defines “terminal illness” as having an illness or physical condition that can reasonably be expected to result in death in 84 months or fewer.
  • Provides guidelines for certification of terminal illness status that must be provided to the plan administrator and requires it to be written by a physician.
  • Note that there is legislation proposed that would provide the needed technical corrections to some of the glitches in SECURE 2.0. Included in the current draft would be a provision to make these terminal illness distributions permissible in-service distributions. Until and unless that draft advances and eventually becomes law, participants will have to have an otherwise distributable event but can still take advantage of the special tax treatment under SECURE 2.0 and avoid the additional 10% income tax penalty if they are under age 59½.
  • The Notice extends SECURE 2.0’s amendment deadlines until at least the end of 2026.
  • The Notice confirmed that the extension applies to both interim and discretionary amendments.