Congress passed the long-awaited SECURE 2.0 Act of 2022 that promises to restructure most Americans’ 401(k) plans and change retirement contribution and withdrawal rules to help Americans grow and preserve their nest eggs.
The SECURE 2.0 Act came as part of the $1.7 trillion omnibus spending bill Congress passed before closing for the Christmas holiday, and President Biden intends to sign it into law.
So what’s included in this retirement legislation? And how will it affect your money? We’ll talk you through the details of the SECURE 2.0 Act below. Keep in mind that new laws can be complex. A financial advisor can explain the intricacies of the SECURE 2.0 Act and how it directly affects you and your financial situation.
What Is the SECURE 2.0 Act?
The SECURE 2.0 Act (aka, the Securing a Strong Retirement Act 2.0) puts in motion provisions to make retirement savings more straightforward and accessible to a wider range of people.
Beginning in December 2019, the original SECURE Act was created to re-introduce the topic of retirement probing onto the congressional agenda. There has been an evident and growing concern about retirement savings being cast aside that was in much need of attention.
From then to now, new provisions have been added to accomplish several tasks in the final bill being executed:
- Implement mandatory auto-enrollment into company-sponsored retirement plans
- Increase annual catch-up limits for contributors age 50+
- Include Roth matching as a contribution option
- Increasing the minimum age for compulsory minimum distribution elections
- Increase part-time employee participation in retirement savings plans
- Allow student-loan matching
Keep in mind this is not an exhaustive list. For the full scope here is the government release of the SECURE 2.0 Act provisions.
Mandatory Retirement Auto-Enrollment
Auto-enrollment has been shown to drastically increase participation in retirement savings (19% to 75%), especially among groups that historically don’t contribute. This includes lower-paid workers, younger demographics, and minorities.
Automatic enrollment into 401(k) plans won’t require people to contribute, it will simply provide initiative. So instead of employees having to opt into contributing, they will have to take an extra step to opt out.
Increase Annual Catch-up Limits
Currently, if you are age 50+ you can apply catch-up contributions of $7,500 annually to a retirement plan and $1,000 for an IRA.
Section 108 of the SECURE Act maintains the $1,000 for an IRA but adds indexing.
Note: Indexing is basically a yearly review that will allow for adjustments based on market conditions such as inflation.
Section 109 includes a distinct increase in annual catch-up limits that apply to only three age categories: 60, 61, 62, and 63 (but not 64). If you fall into one of those four ages for 2025 you are eligible to make contributions of up to $10,000 to a retirement plan. This will also allow for indexing.
Roth Matching
Contributors participating in a company match can now opt to receive a match on a Roth account. Prior to the SECURE Act matching contributions could only be made on a pre-tax basis.
Minimum Mandatory Distribution Age Increase
Mandatory distributions are the required withdrawals that a retirement account holder must take when you reach 72 years of age. All of the following accounts apply:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Rollover IRAs
- Most 401(k) and 403(b) plans
- Most small business accounts
With the SECURE 2.0 Act, the age has been upped from 72 to 73 in 2023. And the plan is for it to continue to increase – to 74 in 2029 and 75 beginning in 2032.
Part-time Employee Participation
As of now, part-time employees are only eligible for an employer-sponsored 401(k) after three years of service. With the new act in place, that is lowered to two years. This provision applies to all part-time workers but was mentioned to cater to women specifically since due to common practice (and the motherhood penalty), women are more likely to work part-time.
Student-loan Matching
With student loans being a significant factor in a person’s ability to contribute to their retirement savings, there’s a provision to account for this situation. Under the SECURE 2.0 Act, employers are now allowed to make matching contributions to a 401(k) plan, 403(b) plan, or SIMPLE IRA for qualified student loan payments.
The term “qualified” was only broadly included as any payment to debt made for higher education purposes.
The Bottom Line
As of December 23, 2023, Congress passed the SECURE 2.0 Act as part of the $1.7 trillion omnibus spending bill that President Biden will soon sign into law. This retirement legislation will help Americans contribute to retirement accounts and preserve their nest eggs. In addition to retirement account auto-enrollment and Roth matching, the bill also includes additional provisions on annuities, the saver’s credit and lost retirement accounts. For specialized help pertaining to your individual situation, consider matching with a vetted financial advisor for free.
Tips for Retirement
- Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Want to see if you’ll have enough money for retirement. Use SmartAsset’s retirement calculator.
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