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401(k) Loans

A loan from your retirement plan (often a 401(k) plan is essentially you borrowing from your own account and then paying it back over time — with interest — into your own account.

Eligibility / availability

  • First, not all plans allow loans. Even though the law permits plan loans, a particular employer’s plan can choose not to offer them.
  • You must have a “vested” account balance (you must own the amount you’re borrowing against).

Limits

  • Under IRS rules, you may borrow up to the lesser of: 50% of your vested account balance, or up to $50,000.
  • If you already had/have an outstanding loan, the amount you can borrow may be reduced by the highest outstanding loan balance during the last 12 months or you may have to wait until one year has passed.
  • The loan must generally be repaid within 5 years, unless the loan is used to purchase a primary residence (in which case the term may be longer under some plans).
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Roth Catch-Up Regulations Finalized

Effective January 1, 2026, employees with FICA wages that exceed $145,000 in the preceding calendar year will only be able to make age-based catch-up contributions on a Roth basis.

What does this mean for my 401k plan?

If your plan has a Roth source, your plan may provide that participants that exceed $145,000 in wages in the prior year are “deemed” to have designated pretax catch-up contributions as Roth contributions.

If your plan does not have a Roth source, participants who exceed the FICA wage threshold will not be able to make catch-up contributions. Pre-tax deferrals will need to be stopped when the annual limit is reached.

What do I need to do?

  • Watch for communications from your recordkeeper.  Recordkeepers are providing resources to guide plan sponsors through the changes. 
  • Notify your participants of the change.  Your recordkeeper can provide a notification template.
  • Contact your payroll provider to ensure they are ready for the updated regulations.
  • Reach out to our team at Arcwood Financial. We can review your plan and provide assistance with any necessary updates.

Resources

Fidelity Roth Catch-Up Resource Center

IRS Issues Roth Catch-Up Final Regulations

Vanguard Roth Catch-Up Guide

Pension-Linked Emergency Savings Accounts (PLESAs)

Under the SECURE 2.0 Act of 2022, employers can now offer Pension-Linked Emergency Savings Accounts (PLESAs) within defined contribution retirement plans, such as 401(k), 403(b), and governmental 457(b) plans. These accounts are designed to help employees build emergency savings without compromising their long-term retirement goals.

Who Can Participate?

PLESAs are available to employees who are eligible to participate in their employer’s retirement plan and are not classified as highly compensated employees (HCEs). Generally, an HCE is an individual who earned more than $150,000 in the preceding year, though this threshold may be adjusted periodically. Employers may also set additional eligibility criteria, provided they are consistent with the plan’s terms and applicable laws.

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New 401(k) Rules for Long-Term, Part-Time Employees

Recent changes under the SECURE Act of 2019 and SECURE 2.0 Act of 2022 have expanded 401(k) plan eligibility to include long-term, part-time (LTPT) employees. Employers need to understand these rules to ensure compliance and avoid costly corrections.

What Changed?

The SECURE Act of 2019 requires employers to allow employees who have worked at least 500 hours per year for three consecutive years (starting from 2021) to make 401(k) deferrals, beginning in 2024.

SECURE 2.0, passed in 2022, reduces the requirement to just two consecutive years for plan years beginning in 2025. This change means that employees who work at least 500 hours in 2023 and 2024 will be eligible to defer into the plan as early as 2025.

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De Miniums Employee 401k Participation Incentives

Under the SECURE 2.0 Act, employers are now permitted to offer small financial incentives—such as gift cards—to encourage employees to begin participating in 401(k) or 403(b) retirement plans. This provision, effective for plan years starting after December 29, 2022, introduces specific rules and limitations:

Key Rules and Limitations

  • Maximum Value: The incentive must be “de minimis,” defined by IRS Notice 2024-2 as not exceeding $250 in total value. This amount can be provided either as a lump sum or in installments, provided the cumulative value does not surpass $250.
  • Eligibility: Only employees who are not currently making elective deferrals to the plan are eligible for these incentives. Employees already participating in the plan cannot receive these incentives, even if they choose to increase their contributions.
  • Funding Source: The incentive must be paid by the employer using non-plan assets. It cannot be funded through the retirement plan itself or structured as an employer matching contribution.
  • Tax Implications: These incentives are considered taxable income to the employee and are subject to standard income and employment tax withholding and reporting requirements, unless they qualify for another specific tax exclusion.
  • Plan Qualification: Since these incentives are not treated as plan contributions, they are not subject to retirement plan qualification rules, contribution limits, or nondiscrimination testing.

Practical Considerations

Employers can structure these incentives in various ways, such as offering a $100 gift card upon initial enrollment and an additional $100 after six months of continued participation, ensuring the total does not exceed the $250 limit. However, offering incentives like raffles or prizes with values exceeding $250 per individual may not comply with the “de minimis” standard and could raise compliance concerns.

Before implementing such incentive programs, it’s advisable to consult with legal or tax professionals to ensure compliance with all applicable regulations and to address any potential complexities.

Executive Order on Alternatives in 401(k) Plans: What It Really Means and How Soon We Might See Changes

On August 7, 2025, the White House issued an Executive Order directing the Department of Labor (DOL)—in coordination with the SEC and Treasury—to review and potentially expand guidance around the use of alternative assets in 401(k) plans.

The move has generated significant industry buzz. While the headline makes it sound like these investments will be available to plan participants immediately, the reality is more measured—and much slower.

What the Executive Order Does (and Doesn’t Do)

The order instructs regulators to evaluate how fiduciaries can prudently offer diversified investment options that include asset classes such as private equity, private credit, real estate, commodities, or other “alternative” strategies.

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New 401(k) Rules for Long-Term, Part-Time Employees

Recent changes under the SECURE Act of 2019 and SECURE 2.0 Act of 2022 have expanded 401(k) plan eligibility to include long-term, part-time (LTPT) employees. Employers need to understand these rules to ensure compliance and avoid costly corrections.

What Changed?

The SECURE Act of 2019 requires employers to allow employees who have worked at least 500 hours per year for three consecutive years (starting from 2021) to make 401(k) deferrals, beginning in 2024.

SECURE 2.0, passed in 2022, reduces the requirement to just two consecutive years for plan years beginning in 2025. This change means that employees who work at least 500 hours in 2023 and 2024 will be eligible to defer into the plan as early as 2025.

Who Becomes Eligible?

To qualify as an LTPT employee, the following conditions must be met:

– At least age 21 by the end of the relevant 12-month period.

– Completed at least 500 hours of service in each qualifying year.

– Service must be from 2021 onward to count for eligibility or vesting.

Tracking Hours – Can Your System Handle It?

Some 401(k) platforms will calculate LTPT eligibility automatically if hours are provided on a per-payroll basis. However, many systems cannot track eligibility if full census data is only submitted at year-end or if hours aren’t included.

Speak with your plan advisor, recordkeeper account manager, and/or TPA to confirm whether you need to track hours manually or whether your platform is handling this automatically.

What Happens If You Miss an Eligible Employee?

Failing to allow an eligible LTPT employee to make 401(k) deferrals is a plan compliance failure. Under IRS correction procedures (EPCRS), you may be required to make a qualified nonelective contribution equal to 50% of the missed deferral, plus any match and earnings that would have applied.

Errors can lead to costly corrections and complications in audits, so proactive tracking and communication are key.

Next Steps

Confirm how your 401(k) platform is handling LTPT tracking, review your plan document, and coordinate with your payroll provider to ensure that hours are being recorded and submitted correctly. This is a complex rule, but with proactive steps, you can remain compliant and expand retirement savings access to more of your workforce.

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This material is for educational purposes only and should not be construed as financial, legal, or tax advice. It is not intended to serve as a solicitation or recommendation for the purchase or sale of any securities or investments. The S&P 500 Index is referenced in this article for illustrative purposes and represents a widely recognized measure of U.S. stock market performance. It is not available for direct investment, as the index itself is not a security. Past performance of the S&P 500 or any other index does not guarantee future results. Please consult with a qualified financial professional regarding your personal financial situation before making any investment decisions.

Arcwood Financial, LLC., Arcwood Benefits Consulting, Inc., and Arcwood HR, LLC. (dba Arcwood) are independent companies. Arcwood does not offer legal, tax or compliance advice. Brandon Oliver is an Investment Advisor Representative offering Advisory Services through Arcwood Financial LLC. a registered Investment Advisory Firm.

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