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Highlights on SECURE 2.0 and How it May Impact Retirement Savings

By Jane Young, CFP, EA

The SECURE 2.0 Act was recently signed into law as part of the $1.7 trillion spending bill that congress passed before the Christmas holidays. This is a follow on to the original SECURE Act, Setting Every Community Up for Retirement Enhancement, passed in 2019, intended to make saving for retirement easier. Below are some of the highlights of the new legislation.

  • One change that could significantly increase retirement savings is the requirement that most companies with over 10 employees implement an automatic enrollment in 401(k) and 403(b) plans.  Beginning in 2025, companies will be required to automatically enroll all new, eligible employees at 3%, unless the employee specifically opts out. At the end of every year this will automatically increase by 1% up to at least 10% but not to exceed 15%, unless the participant elects otherwise.  Currently employees must opt into a retirement plan.
  • The minimum age at which required minimum distributions (RMD) are required has been increased to age 73 in 2023 and 75 in 2033.
  • In 2023 the penalty for failure to take your RMD on a timely basis will decrease to 25% of the RMD not taken, previously the penalty was 50%. This will be reduced to 10% if the withdrawal is taken and a corrected tax return is filed in a timely manner.
  • Beginning in 2024, RMDs will no longer be required on Roth accounts held in employer retirement accounts.
  • In 2023, employers will be allowed to provide matching contributions in Roth accounts, these contributions will be included in the employee’s taxable income the year the contribution is made.  Previously, all matching contributions were invested in pre-tax accounts.
  • The new law allows some retirement plan participants to increase catch-up contributions. Starting in 2025 participants who are 60 to 63 can contribute the greater of $10,000 ($5,000 for SIMPLE) or 50% more than the standard catch-up.
  • Beginning in 2024, all catch-up contributions made by employees earning more than $145,000 must be made to a Roth account.  
  • Companies are now legally able to create Roth accounts in SIMPLE and SEP IRA accounts.
  • In 2024, employers can make matching contributions for employees to a 401(k), 403(b) or SIMPLE plan, for qualified student loan payments, even if they are not contributing to their own retirement plan.
  • Beginning in 2025, part-time employees who are over 21 years old and have worked at least 500 hours per year, for two consecutive years can make elective contributions to their 401(k) plan.  This has been decreased from the previous requirement of three years consecutive employment.

This legislation enables employers to make a lot of changes but it may take time for employers to adopt all the changes.  Additionally, it is reasonable to expect additional clarification on several provisions in this bill, especially on changes going into effect in future years.