With a continued rollout of SECURE 2.0 regulations, there continue to be additional options for many to save more for retirement.
Passed in 2022, the SECURE 2.0 Act of 2022 included a number of provisions to help more Americans save for retirement. Several are already in effect, but more are slated to make an impact in 2024 and beyond. Here’s an update.
Retirement savings changes
Auto-enrollment in employer-sponsored retirement plans
A major provision of SECURE 2.0 isn’t set to go into effect until 2025, but it’s worth paying attention to now for the effect it may have on your workplace benefits, savings goals, and paycheck. In 2025, most employers starting a new retirement savings plan must auto enroll everyone at a rate of between 3% to 10%. Then, the employer must increase employees' contribution rate each year until it reaches at least 10% but not more than 15%. (Employees can choose to opt out.)
This rule does not apply to companies with 10 or fewer employees, those that have been in business for less than three years or that have existing plans, SIMPLE plans (which allow employers and employees to contribute to traditional IRAs), church plans, or governmental plans. (There are additional guidelines for 457(b) participants; check with your tax advisor for insights.)
People aged 60 to 63 can already make a catch-up contribution to their retirement accounts, but SECURE 2.0 ups the total by quite a lot: $10,000 to a 401(k) or 403(b), or $5,000 to an IRA in 2025. (Existing catch-up contributions remain the same for those aged 50 to 59.)
Beginning in 2026, individuals 50 and older above a minimum income level (currently $145,000 in FICA wages) will be required to make those catch-up contributions as post-tax, or Roth IRA, contributions. But that also means when that money is withdrawn to use in retirement, it’s not taxed. (The rule was to go into effect in 2024 but has been delayed by two years.)
Elective deferral for long-term part-time employees
Before there was SECURE 2.0, there was SECURE 1.0 in 2019. That legislation offered part-time employees who worked 500 hours in three consecutive years the chance to make contributions to a 401(k). SECURE 2.0 reduces the work-time requirement to two years and widens participation to those with 403(b) plans who work less than 20 hours per week, beginning January 1, 2025.
Mandatory distribution cash-out increase
If you have less than $5,000 in a work-provided retirement savings plan and are leaving a job, you’re currently required to cash itout. In 2024, that cash-out limit may increase to $7,000.
Required minimum distributions (RMD)
SECURE 2.0 ups the age when you’re required to take an RMD to 73, then to 75 in 2033, depending on your birth date. The new legislation also reduces the current 50% penalty for failing to take an RMD down to 25%. Also, beginning in 2024, RMDs are not required from Roth accounts during an employee’s lifetime.
Savings, loans, and withdrawals changes
529 account rollovers to Roth IRAs
If you have a 529 in your name but don’t need some of those savings to pay education-related expenses, SECURE 2.0 allows you to roll over into a Roth IRA up to a lifetime limit of $35,000. The 529 must be at least 15 years old, and contribution limits still apply.
A person with “unforeseeable or immediate financial needs relating to personal or family emergency expenses” may generally take one distribution per year of up to $1,000 without incurring a 10% tax penalty, with pay back within three years.
SECURE 2.0 allows employers to offer emergency savings accounts alongside employer-sponsored retirement plans. Those emergency savings (which must originally be made into Roth accounts) would be limited to non-highly compensated employees and capped at $2,500 (employers may set lower limits and may limit withdrawals to one per month), with extra funds going to an employer-sponsored retirement account. Employers who provide matching contributions for employer-sponsored retirement plans are now also required to match employee emergency savings accounts at the same rate.
Student loan debt payments
Employers that choose to use the student loan provision of SECURE 2.0 can make retirement plan matching contributions on behalf of employees who are paying off qualified student loans.
More SECURE 2.0 provisions
It’s a long list—and there’s even more that may affect you, including additional options for minimum rollovers, donations to charities from retirement plans, and a national clearinghouse for those who may have lost track of retirement savings they once had. For insights, contact your financial professional.