The Secure 2.0 Act, which became law at the end of 2022, aims to help more people prepare for retirement — in part by making government incentive programs more forgiving to people who need help catching up on their savings.
Here are the details about Secure 2.0 and some of the ways it might affect you.
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What is the Secure 2.0 Act?
The Secure 2.0 Act is a federal measure passed in late 2022 to encourage Americans to save for retirement. Among the many changes it makes to retirement policy, the new law pushes back the required minimum distribution age for individual retirement accounts (IRAs). The measure also increases catch-up contribution limits for people over 50.
Why "2.0"? It’s a continuation of the original Secure Act of 2019, which changed the way Americans saved and withdrew money from their retirement accounts. The new law covers several retirement issues, such as hardship withdrawals and emergency savings, that weren’t part of the original Secure Act. These changes may help Americans save for retirement while balancing current expenses.
8 ways the Secure 2.0 Act affects your retirement
1. Automatic 401(k) enrollment
If your employer offers a retirement plan, such as a 401(k) or 403(b) plan, you typically have to opt in to participate — though some employers do provide automatic enrollment. Federal lawmakers have said that manual enrollment decreased participation for eligible employees, particularly Black, Latino and lower-wage workers.
For retirement plans starting after Dec. 31, 2024, this will no longer be the case. Instead, once employees are eligible, employers will automatically enroll them into a retirement savings plan.
The initial contribution must be at least 3% of pretax earnings but not more than 10%. Once this provision takes effect, employees will have to opt-out if they don’t want to participate in their company’s retirement plan.
In addition to automatic 401(k) enrollment, Section 604 of Secure 2.0 now also allows employees to choose for their employer match to be a Roth contribution. This means that the money will count as earned income, and taxes will be paid on it now, but earnings will be taken out tax-free in retirement.
2. A new 401(k) employer contribution option
In the past, employees with a Roth 401(k) typically had their employer contributions made into a separate, pre-tax account such as a traditional 401(k). With Section 604 of Secure 2.0, employees can now choose to have their employer contributions be made into the Roth account, if offered by their employer. This does mean that the money will count as earned income and incur taxes now, but qualified distributions in retirement, similar to a Roth IRA, will be tax-free.
3. Required minimum distributions
Under the new Secure 2.0 Act, the rules and penalties around required minimum distributions also have changed. The age for required minimum distributions was raised from 72 to 73 in 2023, and will rise to 75 in 2033.
Additionally, as of 2023, the penalty for not taking required distributions decreased to 25% from 50%. If the error is corrected in time, the penalty drops to 10%. As of 2024, required distributions will be eliminated altogether from non-IRA Roth accounts, including Roth 401(k) plans.
These changes mean people will now have even more time to grow their retirement funds.
However, pushing back your retirement payouts comes with a caveat. Taking distributions from your traditional IRA later means you’ll have to withdraw more funds in a shorter period of time, a decision that could be more expensive depending on your tax rate at the time.
4. Catch-up contributions
With new provisions in Secure Act 2.0, people 50 and older will have a few more options to catch up to their retirement goals. With catch-up contributions, the IRS allows older Americans to contribute more to their retirement funds beyond the annual limit. This could help make up for missed opportunities to save when they were younger.
Starting in 2025, catch-up contribution limits to retirement plans such as 401(k)s for those age 60 to 63 will increase from $7,500 per year to $10,000. After 2025, the limit will be indexed for inflation. Catch-up contributions for those outside of this age range have not yet been announced by the IRS.
For SIMPLE IRAs, the catch-up contribution limit is $3,500 in 2024.
5. Education savings and loan debt
Parents saving for their children’s college funds will have some new flexibility with their 529 plans. After 15 years, funds from the 529 plan can be rolled into a Roth IRA account for the beneficiary. The amount contributed each year can’t exceed the annual IRA contribution limit, up to a lifetime limit of $35,000.
» Learn more: See the IRA contribution limits
People with student loans can take advantage of a new incentive under Secure 2.0 Act to balance saving for retirement and repaying student loans instead of choosing one or the other. As of 2024, when you make a qualified student loan repayment, your employer may “match” that amount into your 401(k) plan, 403(b) plan or SIMPLE IRA.
6. Saver's tax credit
The Secure 2.0 Act includes changes to the saver's tax credit, intended to give lower-income earners an extra boost toward their retirement savings.
When contributions are made into a retirement account, the federal government will match that contribution instead of giving an immediate tax break. While this means you won’t receive the tax break, it also could potentially result in more retirement savings.
7. Emergency withdrawals
One drawback of saving for retirement is that you typically can’t touch the funds until retirement age without incurring hefty penalties and a 10% early distribution tax. As of January 2024, however, account holders will be able to withdraw from their 401(k) plans or IRAs for emergency expenses without these consequences.
Only one distribution of up to $1,000 per year is allowed, and the funds must be repaid within three years. If the funds haven’t been repaid within the three-year period, no additional hardship withdrawals can be made.
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8. Emergency savings
Building an emergency fund is crucial to ensuring you can cover any surprise expenses, but between daily living expenses and the added responsibility of saving for retirement, it can be hard to get started.
As of 2024, employers that provide a defined contribution retirement plan may also offer a pension-linked emergency savings account for employees who are not highly compensated, with employees automatically opted in at up to 3% of their salary.
The balance of the account is capped at $2,500 (or lower, depending on employer guidelines), and contributions can stop or be directed to a Roth-defined contribution plan if available until the balance drops below the cap. The first four withdrawals from this account aren’t subject to fees or charges, and after employees leave the company, they can choose to take the funds in cash or roll those funds into a Roth-defined contribution plan or IRA.
