Secure 2.0 introduces major changes to the retirement savings system. Here are some of the legislation’s major changes at a glance:
- The required minimum distribution (RMD) age will increase to 73.
- Catch-up contributions will increase to $10,000 for older savers invested in workplace retirement plans.
- Auto-enrollment into workplace plans like 401(k)s will become a requirement.
- More part-time employees will have access to workplace retirement plans.
- Employers will be allowed to make retirement plan matches based on student loan payments.
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Secure 2.0 to increase RMDs and catch-up contributions
Among the major changes to the retirement plan system included in the Secure 2.0 Act is an update to RMD rules.
Beginning Jan. 1, 2023, the new RMD age will increase to 73. It will increase again in 2033 to 75. As of 2022, the RMD age was 72.
The Secure 2.0 Act, beginning in 2023, will also soften the penalty tax that people will face if they fail to take required RMDs. That penalty will drop to 25% of the RMD amount not taken, from the previous 50%.
In addition, Roth 401(k)s will be exempt from RMD requirements beginning in 2024.
The Secure 2.0 Act will also bring changes to catch-up contribution policies for retirement plans.
For 2023, the 401(k) contribution limits are $22,500 (up from $20,500 for 2022). Savers who are at least 50-years-old can make additional catch-up contributions of $7,500 in 2023 (compared to $6,500 for 2022).
Secure 2.0 adds a special catch-up contribution of up to $10,000 specifically for savers between the ages of 60 through 63, beginning in 2025. That amount will be indexed to inflation.
The 2023 individual retirement account (IRA) catch-up contribution limit for those at least 50-years-old is $1,000. It has stayed at that level since 2006. But Secure 2.0 will make the IRA contribution limits indexed to inflation beginning in 2024. This means it may rise each year based on cost-of-living changes.
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Secure 2.0 can expand access to 401(k) plans
Nearly 50% of U.S. workers don’t have access to an employer-sponsored retirement plan, according to an AARP study.
But the Secure 2.0 Act may change that.
The Act requires employers taking on new 401(k) and 403(b) plans to auto-enroll eligible employees into these plans starting at a contribution rate of at least 3%, beginning in 2025. These employers will additionally be required to increase contribution rates by 1% each year to a maximum of 10%. Employees can choose to opt-out of these plans.
Starting in 2025, the legislation will also make part-time employees who have worked for at least two consecutive years with at least 500 hours of annual service eligible for their employer’s 401(k) plan. The previous threshold was three years.
And those who are struggling to pay down student loans may have an easier time saving for retirement moving forward. Beginning in 2024, the Secure 2.0 Act will allow employers to match employees' student loan payments with contributions to workplace retirement plans like 401(k)s.
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