Just before Christmas Congress passed new legislation called SECURE 2.0. It makes significant changes to the ways Americans can save and invest. The original SECURE Act was passed in 2019 and it wasn’t broad enough. SECURE 2.0 is designed to help people hold on to their money longer in retirement.
Here’s how it might affect you:
Required Minimum Distributions (RMDs)
RMDs require you to start withdrawing from your Traditional 401(k) and Traditional IRA at age 72. SECURE 2.0 pushes the RMD age to 75 gradually. In 2023, the RMD age is moved to 73 and to 75 by 2033. The legislation reduces the penalty for failing to take your RMDs. Currently, 50% to 25% and in some cases to 10%.
401(k) Catch-Up Contributions
Catch-up contributions are getting a boost. People 50 and older can currently make catch-up contributions of $7,500 to their 401(k). That changes to $10,000 in 2025.
401(k) Enrollment Changes
401(k) enrollment has two big changes under the new law. First, companies will be required to make 401(k) enrollment automatic with a minimum contribution of 3% effective in 2025. Second, 401(k) eligibility will happen sooner for part-time employees.
Student Loan Match
SECURE 2.0 makes it possible for your employer to match your student loan payments. Starting in 2024, your employer can match your debt payoff via employer contributions to your retirement account.
529 rollovers are now possible. Parents set up a 529 College Savings Plan typically when their children are very young and can’t be sure if their children will go to college or not. Now, you can roll the 529 over to a Roth IRA after 15 years.
Employer Emergency Savings Account
An emergency savings account is now possible from your employer. You can contribute to an employer sponsored Roth for emergency savings, starting in 2024. You can contribute $2,500 and make a maximum of four withdrawals yearly.
Secure 2.0 also includes incentives for small businesses to set up retirement savings plans for their workers and it encourages individuals to set aside long-term savings plans. The whole point of this legislation is to change financial behavior and put people in a better position to retire successfully.