SECURE 2.0 increase to cashout limit for forced distributions

2024 increases to $7k. Suppose plan currently uses 1K. Can the plan operationally go ahead and use the 7K for 2024, or must it amend to 5k, which then increases to 7k? The latter seems absurd, but an interesting question...

SECURE 2.0 just increased the dollar limit that appears in the code. How a plan sponsor chooses to amend the plan is up to them, or maybe up to their preapproved document vendor. I haven't seen any amendments yet, but I can imagine a vendor providing an amendment that says the involuntary distribution limit is increased to $7,000 effective 1/1/2024 only if the plan's involuntary distribution limit was $5,000 as of 12/31/2023. In that case, your plan sponsor could either amend to $5,000 as of 12/31/2023 to take advantage of the vendor's amendment, or just operationally amend on their own to $7,000 as of 1/1/2024. Either way would get them to the same place as of 1/1/2024. Since the actual amendment isn't due until 2025, I think they would have plenty of time to figure out the paperwork.

In my opinion (which is worthless) you can wait until the deadline for SECURE 2.0 amendments to increase from $1K to $5K. I don't think you need to amend now to $5K in order to be entitled to the extended 2.0 amendment deadline. I see no difference amending from $5K to $7K vs. amending from $1K to $7K. Also, my answer assumes the IRS will allow "integrally" related amendments to be made by the extended 2.0 amendment deadline (they have always done this and I expect that to be the case here). Otherwise, all amendments for discretionary changes (which this is), would need to be amended under the discretionary amendment timing rules rather than the extended 2.0 deadline. 

Under $1K can be cashout to participant as taxable, above $1K requires rollover to IRA. As long as forced distributions between $1,000 - $7,000 are rolled to an IRA I personally don't see a problem with adoption the conforming amendments by the end of the Secure 2.0 remedial amendment period. That said, the IRS may view it as a discretionary amendment and might require adoption sooner to raise the limit even from $5,000 to $7,000 let alone changing from $1,000 to $7,000.

Just to put some practical in this....  Chances are that if a plan has a $1000 cash-out limit, it's because they don't want to deal with rollover IRA issues - and those concerns may still be valid.  As a practical approach - as a recordkeeper that provides prototype documents, we will "default" those who have $5000 to $7000 (unless clients tell us otherwise), and default those at $1000 (or less) to stay at $1000 (or less) (unless they tell us otherwise).   We actually don't have any plans with anything between  $1000 and $5000 (out of about 6000 plans)

9 minutes ago, MoJo said:

we will "default" those who have $5000 to $7000 (unless clients tell us otherwise), and default those at $1000 (or less) to stay at $1000 (or less) (unless they tell us otherwise).   We actually don't have any plans with anything between  $1000 and $5000 (out of about 6000 plans)

Yep, same here. 

If I had it my way I would default everyone to $7000 with all force-outs being rollover IRAs to avoid stale checks...

15 hours ago, RatherBeGolfing said:

If I had it my way I would default everyone to $7000 with all force-outs being rollover IRAs to avoid stale checks...

Precisely what my ops/treasury teams are arguing for.  But those pesky clients.....