SECURE Act 2.0 Provisions Effective in 2026 & Beyond
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It has been less than one year since the SECURE Act 2.0 was passed as part of the Consolidated Appropriations Act of 2022. The legislation takes additional steps to make it easier for American workers to save for retirement but also provides additional flexibility when it comes to hardship withdrawals and emergency saving issues. There are also several changes to how plans must operate that encourage broader participation and facilitate additional participant benefits. Given its comprehensive nature, many provisions will become effective in 2024, 2025, and beyond. As part of our ongoing series on the SECURE Act 2.0, JLK Rosenberger has summarized the key provisions effective in 2026 below.
SECURE Act 2.0 – 2026 & Beyond Provisions
- Paper Statements – Beginning in 2026, all defined contribution (including 401k and 403b) plans must provide participants with one paper statement annually. For defined benefit plans, the SECURE Act 2.0 modified the requirement to permit paper statements to be sent once every three years. There was discussion about adding new disclosures to be included in these statements, but it was decided to omit the change from the Act’s final version.
- Long-Term Care Premium Payments – Also effective for 2026, plans can permit the penalty-free distribution to cover eligible long-term care expenses. The amount of the distribution is the lesser of $2,500 or 10% of a participant’s vested balance to cover qualified expenses. There are several rules for insurance eligibility, and the plan must receive a copy of the premium invoice before any distributions can be issued.
- Disability Payment Exclusions – Another important change is the opportunity for first responders(military, fire, police, etc.) to exclude service-connected disability pension payments from gross income after retirement age. This change impacts eligible participants in 401(k), 403(b) and 457(b) retirement plans. The change applies to eligible amounts received in taxable years starting after December 31, 2026.
- Saver’s Matching Contribution Program – This program is designed to replace the Saver’s Credit and is effective starting in 2027. The Saver’s Match is designed to provide benefits for lower-income earners with limits placed on annual salary. The match will be 50% of the IRA or retirement account contributions up to $2,000 per individual and $4,000 per couple. Income limits based on tax filing status include $35,500 for individuals, $53,250 for head of household, and $71,000 for married filing jointly.
- Deferral of Tax for Certain Sales of Employee Stock – Another change allows S corporation owners the opportunity to claim a lucrative tax deduction. Under prior regulations, only C corporation owners could defer capital gains tax up to 100% on any proceeds earned from a sale to an Employee Sponsored Ownership Plan (ESOP). Now this benefit has been extended to S corporation owners as well. Specific requirements must be met, including the ESOP must own 30% or more of the stock after the sale, and the seller must reinvest the proceeds into a qualified replacement property. The change is effective for ESOP sales that occur after December 31, 2027.
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The SECURE Act 2.0 calls for several changes impacting plan sponsors, participants, and others, which phase in over several years. While many of the provisions will not be immediately effective, it is essential to be aware of the updates and potential savings opportunities. If you have questions about the information outlined above or need assistance with your next plan audit, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.
