SECURE 2.0 Act

Effective March 7, 2025 for the 2025 tax year and approved by the Board on November 19, 2024.

What changed?

SECURE 2.0 offers an optional provision (Section 109) that allows participants who are turning ages 60, 61, 62, and 63 to have a higher contribution limit. Once implemented, this limit is automatically applied to all participants who qualify based on their age.

What is the new limit?

The Age 60-63 Limit for 2025 is $34,750. The limit is calculated based on the greater of either $10,000 or 150% of the Age 50+ limit. In 2025, the Age 50+ limit was $7,500 plus the regular limit. Thus, the Age 60-63 additional contribution is $11,250 (plus the regular limit).

What do I need to do?

Nothing! If you qualify based on your age, the higher contribution limit is automatically applied. You can take advantage of the increased limit by increasing your contribution. Learn how to change your contributions by visiting the Change Contributions Page. If you are turning 64 at any point in the calendar year, your limit will automatically be reverted to the Age 50+ limit.

When does this go into effect?

The Board of Deferred Compensation Administration adopted SECURE 2.0 Act Provision 109 on November 19, 2024 to allow for the implementation of the Age 60-63 increased contribution limit. The DCP implemented this Provision in March of 2025 to be effective beginning the 2025 tax year as provided for in the SECURE 2.0 Act.

Approved by the Board on January 21, 2025 and made effective as of January 1, 2025.

What are the new provisions?

Three new provisions have been adopted related to Disaster Relief and emergency withdrawals.

1. Qualified Disaster Distribution and Loan: Section 331 of SECURE 2.0 Act allows for up to $22,000 in withdrawals that are exempted from the IRS 10% premature distribution penalty tax and can be repaid to the DCP. Additionally, the provision allows for loans up to $100,000, with repayments deferrable for 12 months.
2. Withdrawal for Certain Emergency Expenses: Section 115 of SECURE 2.0 Act allows for a $1,000 distribution, once per year, due to immediate needs, exempted from the IRS 10% premature distribution penalty.
3. Self-Certification for unforeseen financial emergency: Section 312 allows for employees’ written certification that a distribution is required to satisfy an immediate need. While adopted by the Board, this provision is currently pending implementation due to changes necessary for the work process; please check back for further updates.

Qualified Disaster Distribution and Loan

Your primary residence must be in an area that is designated as a federal major disaster and have suffered economic damage related to the disaster. You must take the distribution within 180 days of the first day of the federally designated disaster.

• Qualified Disaster Loans

Please call the Service Center at 844-523-2457 to initiate your request. The maximum amount for the Qualified Disaster Loan is higher than a “regular” loan: up to $100,000 (or the balance of your account if it is lower than $100,000).

Loan repayments may be deferred for 12 months. For active employees, loan repayments will be made via payroll deductions. For retired and separated from City service participants, loan repayments will be made via bank withdrawal.

• Qualified Disaster Distribution Please call the Service Center at 844-523-2457 to initiate your request. You may request up to $22,000 (or the balance of your account if it is lower than $22,000).

The distribution is exempted from the IRS’ 10% premature distribution penalty tax. However, the distribution will still be considered taxable income by the IRS but can be reported as gross income over a three year period. The distribution can also be repaid back to your DCP account within a three year period from the date of distribution.

Withdrawal for Certain Emergency Expenses

This provision allows for one penalty-free withdrawal of up to $1,000 per year. The withdrawal may be repaid within three years. If the withdrawal is not repaid, the participant is only permitted one withdrawal within a three year period.

Please call the Service Center at 844-523-2457 to initiate your request.

Self-Certification for unforeseen financial emergency

This provision allows employees to provide written certification that a distribution is required to satisfy an immediate unforeseen and emergency need. This provision is not yet available but future updates will be provided.

What are Required Minimum Distributions?

The Federal Government allows the deferral of taxes on both your contributions and your earnings as an incentive to help you save for retirement, but this is not intended to be a permanent tax shelter. To that end, the Federal Government established Required Minimum Distributions (RMDs). Once you meet the minimum beginning age, you must take an annual RMD distribution in an amount that is based on your balance from December 31 of the prior calendar year and a formula that the IRS has established.

What changed?

• Effective January 1, 2023, the age requirement to begin taking RMDs increased from age from 72 to 73, affecting anyone attaining age 72 after December 31, 2022. If you turned 72 in 2022, and you’re not employed by the City of Los Angeles, you must have taken your first 2022 RMD by April 1, 2023. Keep in mind you will still need to take another RMD for 2023 by December 31, 2023, and by every December 31st thereafter. If you have not proactively taken any distributions, the DCP will automatically disburse this amount to you.

If you turn 73 any time after December 31, 2022, and are not employed by the City of Los Angeles, you must take your first RMD by April 1st of the following year after you turn 73. You will also need to take another RMD by December 31st of that year and by every December 31st thereafter. If you have not proactively taken any distributions, the DCP will automatically disburse this amount to you.

• The missed RMD penalty is reduced to 25% of the amount of the missed payment. If payment is corrected in a timely manner, the penalty may be reduced to 10% of the missed payment.

Previously, the IRS penalty for a missed RMD payment was 50%. The Secure 2.0 Act has reduced that penalty to 25%.

• Roth (after-tax) account balances will no longer be subject to RMDs during the participant's lifetime, and is effective for tax years after December 31, 2023.

Prior to the SECURE 2.0 Act, both pre-tax and after-tax (Roth) account balances were taken into consideration when calculating the RMD amount.

• Surviving Spouses can now elect to defer RMDs until the year in which the plan participant would have attained RMD age.

This provision is effective for tax years after December 31, 2023.

Are Roth (after-tax) contributions subject to RMDs?

No. The SECURE 2.0 Act now indicates that RMDs will be calculated only on pre-tax account balances. Roth (after-tax) account balances will not be subject to RMDs, effective for tax years after December 31, 2023.

How does the DCP help?

Each January, using an IRS formula, the DCP calculates the RMD amount for each applicable participant. RMD reminders are sent around April and October. If you don’t take your RMD or enough to cover your RMD amount during the year, the DCP will automatically send you a check for your RMD amount (less any other applicable distributions you’ve already taken) in December (or in March if it is your first RMD) to help ensure you are not subject to an IRS penalty. We encourage you to consult with your tax advisor about your specific situation.

Please note that if you have a self-directed brokerage account (SDBA), a minimum of $2,500 is required to be held in the core investment options, or what we call your core account. The DCP is not able to initiate the automatic payments for your RMD unless you have enough of a balance in the core account to cover the $2,500 required minimum balance and the amount of your RMD.

What happens if I miss my RMD?

A SECURE 2.0 Act provision reduces the missed RMD penalty from 50% to 25% of the amount of the missed payment. If failure to take the RMD is corrected in a timely manner, the penalty may be reduced to 10% of the distribution. Please consult with your tax advisor about your specific situation.

When did this go into effect?

These mandatory provisions under the SECURE 2.0 Act were adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting and are effective for RMDs made after December 31, 2022 unless otherwise indicated.

Effective for the March 24, 2024 paycheck and approved by the Board on June 20, 2023.

What changed?

Previously, contribution changes needed to be made prior to the first day of the month. For example, a contribution change for a paycheck in June must have been made before May 31.This is known as the "first-of-the-month" rule and was set in place by the IRS. A SECURE 2.0 provision allows participants’ contribution elections to be effective in the same month the compensation is available to the participant, thus eliminating the "first-of-the-month" rule. For example, a participant may request a contribution change for a paycheck in June in the same month as long as it is made within an appropriate processing time frame prior to the paycheck.

For information on how to make contribution changes, visit our Change Contributions page

What was the benefit of this change?

Participants now have greater flexibility in making their contribution changes. The change also aligns the DCP with best practices in the retirement industry.

When did this go into effect?

This optional provision under SECURE 2.0 was adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting and was made effective for any deferral changes scheduled for the March 20, 2024 paycheck. Your contribution change will now take effect as soon as administratively feasible, but generally may take one to two pay periods (depending on the payroll processing timeline) to see the change reflected on your paycheck. Should you have questions on timing of your contribution change, please contact la457@lacity.org.

What may be changing?

Participants above the age of 50 or between the ages 60-63 have a higher annual contribution limit than the normal limit, as determined by the IRS. The higher limit is automatically applied in the year that you turn the eligible age and may be deferred as either pre-tax or after-tax (Roth) contributions.

Under SECURE 2.0, participants whose wages exceed $145,000 in the prior calendar year (adjusted annually for cost-of-living in increments of $5,000) must make their additional age contributions on an after-tax (Roth) basis only. The after-tax (Roth) requirement only applies to contributions above the normal IRS contribution limit. The retirement industry is seeking further guidance from Congress and the U.S. Treasury Department regarding the implementation of this new provision. The provision was originally intended to become effective for 2024, however, subsequent guidance allowed plan administrators to delay implementation until 2026.

How do I know if this may apply to me?

Participants who earned more than $145,000 in the prior calendar year will be notified regarding the required limits. Additionally, you can review your W-2 to determine your wages from the prior calendar year. Participants are encouraged to review their contributions throughout the year to ensure they are not contributing more pre-tax dollars than they are allowed.

What happens if my wages drop below $145,000?

The threshold will be determined by the IRS annually with increases from cost-of-living in increments of $5,000. If you do not meet the criteria, you will be eligible for both pre-tax or after-tax (Roth) contributions.

I'm enrolled in Special Catch-Up. How does this impact me?

This provision does not apply to those who are enrolled in Special Catch-Up, which permits participants who are within three calendar years of normal retirement age to defer up to twice the normal contribution limit for three consecutive years, as long as the participant had under-contributed prior eligible years.

For more information, visit our Catch-Up page or schedule an appointment with one of our Voya Local Retirement Counselors.

When does this go into effect?

This mandatory provision under the SECURE 2.0 was adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting and is effective after December 31, 2023. However, the retirement community is requesting a delay in implementation until 2026 and is currently awaiting guidance from Congress and the U.S. Treasury Department. There is a possibility that this provision will not apply to the DCP.