SECURE 2.0 Act – Section 304. Small Balance Force-Out Limit Increase

SECURE 2.0 Act – Section 304. Small Balance Force-Out Limit Increase

Many qualified plans have added provisions that allow Plan Sponsors to force-out vested account balances for separated participants to IRA accounts. 

In the past, the limit for applying this provision has been for vested account balances of $5,000 or less.  However, with the passage of the SECURE 2.0 Act (SECURE 2.0), Plan Sponsors are now allowed to force-out separated participants with vested account balances of $7,000 or less. 

Since these balances are being rolled to IRA accounts, this allows Plan Sponsors to remove participant accounts with minimal effort while also avoiding a taxable event for former plan participants. 

Many Plan Sponsors choose to process allowable force-out distributions annually to:

• Assist with delaying or eliminating a plan audit requirement,
• Mitigate the risk of losing plan participants in the future, and/or
• Reduce administrative costs to the plan.

Section 304 is effective for distributions made after December 31, 2023.

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.