February 1, 2024
Summary: The SECURE Act 2.0 introduces several key changes to retirement and savings accounts for Americans
In December 2022, the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was officially signed into law, building upon the provisions of the original SECURE Act from 2019.
The new legislation is focused on expanding retirement coverage, encouraging savings and enhancing the flexibility and accessibility of retirement plans for Americans.
How does the SECURE Act 2.0 impact my retirement accounts?
The SECURE Act 2.0 is a wide-ranging law that has significant implications for retirement and savings accounts. In this article, we will review some of the major impacts to be aware of.
Automatic enrollment for new employees
One of the most significant changes introduced by the SECURE Act 2.0 is the requirement to automatically enroll participants in retirement plans that become effective after 12/29/2022. This automatic enrollment requirement applies to affected plans beginning in 2025.
Employers will need to automatically enroll eligible employees into their 401(k) or 403(b) plan at a contribution rate of at least 3%, but no more than 10%, with the option for employees to opt-out or change their contribution rate as needed.
This is expected to significantly boost retirement savings plan participation, particularly among younger generations and those who haven't actively enrolled in their employer's plan previously.
Increased catch-up contributions
A catch-up contribution allows older workers to set aside additional funds above the standard savings limit in their 401(k) or individual retirement accounts (IRAs).
The SECURE Act 2.0 increases the catch-up contribution limits for individuals aged 50 and older, starting in 2024.
The charts below illustrate the potential impact to your retirement savings in 2024.
Type of Account | 2024 Maximum Annual Employee Contribution | 2024 Maximum | 2024 Total Maximum Contribution for Individuals Aged 50+ |
|---|---|---|---|
401(k) | $23,000 | $7,500 | $30,500 |
IRA | $7,000 | $1,000 | $8,000 |
Additionally, for 401(k) participants who are between the ages of 60 and 63, the annual catch-up contribution limit increases to the greater of 150% of the regular catchup limit or $10,000 beginning in 2025. This allows individuals nearing retirement to save even more aggressively as they prepare for this important life transition.
Expansion of Roth contributions
Starting in 2023, retirement plans sponsors can offer certain participants the option to have match and profit sharing contributed on an after-tax (ROTH) basis, allowing participants to accumulate tax-free earnings on these contributions.
The Act also includes Roth employer contribution options for Simplified Employee Pension (SEP) IRAs, which expands the flexibility and appeal of the plan design for small business owners.
Additionally, individuals will be able to convert amounts from traditional IRAs to Roth IRAs, with the ability to spread the tax burden over three years.
Student loan matching
The SECURE Act 2.0 allows retirement plan sponsors to make matching contributions to their employees' retirement plans based on qualified student loan payments.
This provision allows employers to support their employees' financial wellness by giving participants an incentive to make student loan payments without forgoing matching contributions to their retirement plan.
Changes to Required Minimum Distributions (RMDs)
The SECURE Act 2.0 increases the age at which individuals are required to begin taking RMDs from their retirement accounts.
Starting in 2024, the RMD age will be raised from 72 to 73, and further to 75 in 2033.
This allows individuals to hold onto their retirement savings for longer and potentially accumulate greater wealth before having to withdraw funds.
Additional provisions
The SECURE Act 2.0 introduces a multitude of additional provisions aimed at enhancing retirement savings and security. Some noteworthy changes include:
- Allowing 529 college savings plan beneficiaries to roll over unused funds up to $35,000 into a Roth IRA
- Ability to use retirement plan funds to pay up to $2,500 per year toward qualifying long-term care insurance premiums without the additional 10% tax on early distributions
- Requires part-time employees who work at least 500 hours over three consecutive 12 month periods to be eligible to defer. The three year requirement is reduced to 2 years effective beginning in 2025
- Providing tax credits for small businesses that offer new retirement plans to offset some start-up administrative costs and for employer matching or profit-sharing contributions
The SECURE Act 2.0 is expected to have a significant positive impact on retirement savings and security for Americans. By expanding access to retirement plans, increasing contribution limits, and offering greater flexibility, the Act is paving the way for a more secure retirement for future generations.
Speak with a retirement plan consultant about how the SECURE Act 2.0 could impact your savings goals
While there will likely be more administrative burden for employers, overall the SECURE Act 2.0 represents a significant step forward in American retirement planning.
Early projections suggest that the Act could lead to increased retirement savings participation, higher retirement account balances, reduced reliance on Social Security during retirement and improved financial well-being for more Americans.
If you’d like to discuss your retirement planning and how the new law can positively impact your financial future, find a Retirement Plan Consultant near you.
We’d be happy to help you chart a course toward meeting your financial goals.
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