Can A Plan Keep Its Cashout Limit at $5,000?

Q: I know that the SECURE 2.0 Act of 2022 raised the mandatory cashout threshold from $5,000 to $7,000. But can our plan keep the limit at $5,000?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Yes. The $7,000 threshold is merely a maximum amount for the mandatory small balance cashout provision for terminated employees; plan sponsors are free to set the amount anywhere up to $7,000. One caveat though—some preapproved plan documents have language that automatically increases the cashout threshold, so you should check with your preapproved document provider in this regard. 

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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