5 Ways the SECURE 2.0 Act Will Improve Retirement Savings in 2025

SECURE 2.0 Act

The SECURE 2.0 Act, a sweeping piece of legislation aimed at strengthening the retirement savings system in the United States, was signed into law on December 29, 2022, and is poised to introduce significant enhancements to retirement savings plans starting in 2025. Building upon the success of the SECURE Act of 2019, SECURE 2.0 expands access to retirement plans, increases contribution limits, and provides new incentives to save for retirement. These changes are designed to help Americans better prepare for their golden years, ensuring a more secure financial future.

One of the most notable provisions of SECURE 2.0 is the creation of a new type of retirement account called the “starter 401(k).” Starter 401(k) plans are designed to make it easier for small businesses to offer retirement plans to their employees. These plans have lower administrative costs and fewer compliance requirements, making them more accessible to small businesses that may not have been able to offer retirement plans in the past. Starter 401(k) plans also feature automatic enrollment, which helps employees start saving for retirement without having to take any action.

In addition to starter 401(k) plans, SECURE 2.0 also increases contribution limits for various retirement accounts. The annual contribution limit for traditional and Roth IRAs will increase to $6,500 in 2025, up from the current limit of $6,000. The catch-up contribution limit for individuals aged 50 and older will also increase to $1,000, up from the current limit of $650. These increased contribution limits will allow Americans to save more for retirement, helping them reach their retirement goals faster. Furthermore, SECURE 2.0 eliminates the “stretch IRA” loophole, which allowed heirs to stretch out their inherited IRA withdrawals over their lifetime. Now, most inherited IRAs will need to be fully withdrawn within 10 years, ensuring that more money is distributed to charity and less is accumulated over generations.

Expanding Eligibility for Retirement Savings Accounts

The SECURE 2.0 Act significantly expands eligibility for retirement savings accounts, making it easier for individuals to save for their future. Here are the key changes introduced by the act:

Part-Time Employees:

Under the SECURE 2.0 Act, part-time employees who work at least 500 hours per year (or 30 hours per week for 17 weeks) will be eligible to participate in employer-sponsored retirement plans, such as 401(k)s and 403(b)s. This change extends coverage to millions of workers who were previously ineligible due to their part-time status.

Long-Term, Part-Time Employees:

The act also establishes a new “long-term, part-time employee” category. Employees who meet this criteria, defined as working at least 500 hours per year for at least three consecutive years, will be automatically enrolled in their employer’s retirement plan (unless they opt out). This provision is designed to encourage long-term savings among part-time workers.

Automatic Enrollment:

The SECURE 2.0 Act requires employers to automatically enroll eligible employees in their retirement plans at a minimum contribution rate of 3%, with the option to increase contributions by 1% each year, up to a maximum of 15%. Automatic enrollment is a powerful tool for increasing savings rates, as it helps employees overcome inertia and procrastination.

Employee Group	Eligibility	Automatic Enrollment
Full-Time	No change	Required
Part-Time (500+ hours/year)	Expanded	Required
Long-Term Part-Time (500+ hours/year)	New Category	Automatic

Simplifying Retirement Planning with Auto-Enrollment Options

The SECURE 2.0 Act introduces a significant reformation in retirement savings, aiming to simplify retirement planning. As part of this effort, the act encourages and facilitates auto-enrollment in workplace retirement plans.

Expanding Auto-Enrollment and Increasing Contribution Rates

The SECURE 2.0 Act mandates that eligible employers automatically enroll their employees in retirement plans, with a default contribution rate ranging from 3% to 10% of their compensation. This auto-enrollment provision is applicable to employers with more than 10 employees and applies to employees who are over 18 and have been employed for three years or less. The contribution rate automatically increases by 1% each year, up to a maximum of 15%. This mechanism aims to encourage employees to save for their retirement early in their careers.

Year	Default Contribution Rate
1	3-10%
2	4-11%
3	5-12%
4	6-13%
5	7-14%
6+	8-15%

Simplifying Employee Choice

The act also recognizes the complexities involved in choosing from a range of investment options. To address this, the SECURE 2.0 Act introduces a safe harbor for employers who adopt a “target date fund” as the default investment option. Target date funds automatically adjust their asset allocation based on the employee’s age and retirement date. This design simplifies the investment selection process for employees and helps them align their investments with their long-term retirement goals.

Facilitating Catch-Up Contributions for Individuals Approaching Retirement

The SECURE 2.0 Act recognizes the need to provide individuals nearing retirement with additional opportunities to boost their retirement savings. It introduces significant enhancements to catch-up contributions, enabling them to save more effectively as they approach their golden years.

Increased Catch-Up Contribution Limits: Beginning in 2025, the act increases the annual catch-up contribution limit for individuals aged 50 or older. For 401(k) and 403(b) plans, the catch-up limit will increase from $6,500 to $7,500. For IRAs, the catch-up limit will rise from $1,000 to $1,500. This increase provides individuals with the flexibility to contribute additional funds to their retirement accounts and enhance their nest eggs.

Indexing Catch-Up Contribution Limits: Previously, catch-up contribution limits were fixed amounts that did not adjust for inflation. To ensure that the value of these contributions remains relevant over time, the SECURE 2.0 Act mandates that the catch-up contribution limits be indexed to inflation starting in 2026. This adjustment aligns with the increasing cost of living and helps individuals plan for their future retirement needs more effectively.

Additional QLAC Income Exclusion: To encourage individuals to preserve their retirement savings, the act creates an additional income exclusion of up to $10,000 from a qualified longevity annuity contract (QLAC) for individuals aged 62 to 64. Individuals can use this exclusion to offset the income generated by their QLACs, which provide guaranteed income payments during retirement.

Promoting Retirement Income Security through Required Minimum Distributions

The SECURE 2.0 Act includes provisions that promote retirement income security by modifying the rules for Required Minimum Distributions (RMDs). Effective in 2025, these changes aim to help individuals maximize their retirement savings and ensure they have sufficient income during their retirement years.

Increase in RMD Starting Age

The Secure 2.0 Act raises the age at which individuals must begin taking RMDs from 72 to 73. This provides taxpayers with an additional year to allow their retirement accounts to grow tax-deferred.

Penalty-Free Withdrawals for Emergency Expenses

The act permits penalty-free withdrawals of up to $1,000 per year for qualified emergency expenses. These expenses include unreimbursed medical expenses, funeral expenses for immediate family members, and certain home repairs or improvements.

Expanding RMD Exceptions

The Secure 2.0 Act expands the exceptions to the RMD rules for individuals who are still working. Those who have not reached age 73 and earn less than a certain amount from their job may be exempt from taking RMDs.

Rollovers from 529 Plans

The act allows tax-free rollovers from 529 education savings plans to Roth IRAs. This provision helps families save for both education and retirement, providing flexibility in managing their financial resources.

Mandatory RMDs for Inherited Roth IRAs

Prior to the Secure 2.0 Act, inherited Roth IRAs did not have RMD requirements. However, the new law mandates that inherited Roth IRAs must be emptied within ten years. This change ensures that beneficiaries utilize the tax-free benefits of Roth IRAs within a reasonable time frame.

Age	New RMD Starting Age
2023 and 2024	72
2025 and beyond	73

Streamlining Retirement Account Consolidation

The SECURE 2.0 Act introduces several provisions designed to make it easier for individuals to consolidate their multiple retirement accounts. These provisions include:

Eliminating the one-year waiting period for rollovers: The current law requires individuals to wait a year before they can take another rollover from the same retirement account. The SECURE 2.0 Act eliminates this waiting period, making it easier for individuals to consolidate their accounts.
Allowing for multiple rollovers from IRAs to qualified plans: The current law only allows individuals to make one rollover from an IRA to a qualified plan each year. The SECURE 2.0 Act allows individuals to make multiple rollovers each year, making it easier to consolidate their retirement savings.
Increasing the age for required minimum distributions (RMDs): The current law requires individuals to begin taking RMDs from their retirement accounts at age 72. The SECURE 2.0 Act increases the age for RMDs to 75, giving individuals more time to accumulate savings.
Expanding the safe harbor age for RMDs: The current law provides a safe harbor for individuals who take RMDs by their required beginning date (RBD). The SECURE 2.0 Act expands this safe harbor to include individuals who take RMDs by the end of the calendar year in which they turn 75.
Creating a new “Qualified Longevity Annuity Contract” (QLAC): A QLAC is a new type of annuity that can be purchased inside a retirement account. QLACs allow individuals to defer taking RMDs until a later age, providing them with more time to accumulate savings.
Reducing the penalty for early withdrawals from retirement accounts: The current law imposes a 10% penalty on early withdrawals from retirement accounts. The SECURE 2.0 Act reduces this penalty to 1% for withdrawals made after age 62.
Establishing a new “lost and found” database for retirement accounts: The SECURE 2.0 Act requires the establishment of a new database to help individuals track down lost or forgotten retirement accounts.

Protecting Retirement Savings from Scams and Mismanagement

Understanding the Risk of Scams

Scammers often target retirees and pre-retirees with fraudulent investment schemes, promising high returns with minimal risk. It’s crucial to be vigilant and scrutinize investment offers carefully.

Reporting Suspicious Activity

If you encounter any suspicious investment offers or suspect unauthorized transactions in your retirement accounts, it’s imperative to report them to the relevant authorities, such as the Securities and Exchange Commission (SEC) or your account custodian.

Importance of Fiduciary Duties

Investment professionals have a fiduciary duty to act in the best interests of their clients. They must provide clear and accurate information about investments and avoid putting their own interests ahead of their clients.

Enhancing Transparency and Protection

The SECURE 2.0 Act aims to enhance transparency and protection for retirement savings by increasing disclosure requirements for investment professionals and strengthening the oversight of retirement accounts.

Specific Measures to Protect Retirement Savings

Increased Disclosure Requirements: Investment professionals must now provide more comprehensive information about fees, expenses, and potential conflicts of interest.
Enhanced Fiduciary Duties: The act clarifies and strengthens the fiduciary duties of investment professionals to act in the best interests of their clients.
Improved Oversight of Retirement Accounts: The act expands the SEC’s authority to regulate retirement accounts and ensures that account custodians take reasonable steps to protect against fraud and mismanagement.

Resources for Retirees and Pre-Retirees

Several government agencies and non-profit organizations offer resources to help retirees and pre-retirees protect their retirement savings, including:

Securities and Exchange Commission (SEC): www.sec.gov
Financial Industry Regulatory Authority (FINRA): www.finra.org
National Association of Retirement Plan Participants (NARPP): www.narpp.org

Mandating Financial Literacy Education for Retirement Planning

The SECURE 2.0 Act mandates the creation of an “automatic retirement savings program” for employees not already enrolled in a retirement plan at work. Under this program, employers with more than 10 employees must automatically enroll their employees in a retirement savings plan, such as a 401(k) or IRA, and contribute at least 3% of the employee’s salary. The employee can choose to opt out of the plan, but they must be given the opportunity to enroll every three years.

The Act also encourages employers to provide financial literacy education to their employees. This education can cover a variety of topics, such as budgeting, saving, and investing. The goal of this education is to help employees make informed decisions about their retirement savings.

Specifically, the Act requires the following:

Employers with more than 10 employees must provide access to a retirement savings plan.
Employees must be automatically enrolled in the plan at a rate of at least 3% of their salary.
Employees can choose to opt out of the plan, but they must be given the opportunity to enroll every three years.
Employers must provide financial literacy education to their employees.

Table of Financial Literacy Education Topics

Topic
Budgeting
Saving
Investing
Retirement planning
Debt management
Insurance
Estate planning
Taxes
Social Security

Background and Overview

The Secure 2.0 Act, enacted in late 2022, brings significant changes to the US retirement savings landscape. Effective in 2025, these enhancements aim to strengthen and expand access to retirement savings, particularly for younger and lower-income Americans.

Key Provisions

1. Enhancing Automatic Enrollment and Auto-Escalation

Employers will be required to automatically enroll new employees in retirement plans at a default contribution rate of 3%, increasing by 1% each year to a maximum of 10%. Additionally, plans will be required to automatically escalate contributions by 1% annually, providing a boost to retirement savings.

2. Expanding Access to Retirement Savings for Part-Time Employees

Previously, employees who worked less than 1,000 hours per year were excluded from employer-sponsored retirement plans. The Secure 2.0 Act lowers this threshold to 500 hours, allowing more part-time workers to save for retirement.

3. Establishing a Lost-and-Found Retirement Registry

The Department of Labor will create a national registry to assist individuals in locating lost or forgotten retirement accounts. This will help reunite workers with their savings and prevent lost funds from accumulating.

4. Expanded Catch-Up Contributions for Employees Over 50

The age at which employees over 50 can make catch-up contributions to their retirement accounts has been increased to 60. Additionally, catch-up contribution limits have been doubled.

5. Student Loan Repayment and Retirement Savings

Payments made toward qualified student loans can now be considered matching contributions for retirement plan purposes, making it easier for individuals to save for both education and retirement.

6. Increased Access to Roth Savings

The Secure 2.0 Act expands access to Roth-type retirement accounts, which offer tax-free qualified withdrawals in retirement. Previously, income limits applied to Roth IRA contributions; these limits have now been removed.

7. Improved Retirement Plan Investment Options

Employers will be permitted to offer annuities and collective investment trusts within their retirement plans, providing employees with more diversified investment options.

8. Enhanced Saver’s Credit

The saver’s credit, a tax credit for low- and moderate-income individuals, has been expanded and extended through 2026.

9. Required Use of Electronic Disclosures for Retirement Plans

Retirement plan providers will be required to provide participants with electronic disclosures, simplifying access to plan information.

10. Miscellaneous Provisions

Provision	Description
Simplified Plan Administration for Small Businesses	Streamlined administrative processes for small businesses.
Increased Protection for Defined Benefit Plan Participants	Enhanced protections against loss of benefits for participants in defined benefit plans.
Expanded Home Equity Savings Accounts	Creation of home equity savings accounts, allowing individuals to withdraw funds for a down payment or home improvements.

Secure 2.0 Act Introduces Retirement Savings Enhancements in 2025

The Secure 2.0 Act of 2022, a significant piece of retirement legislation, was signed into law in December 2022. It introduces a range of enhancements to retirement savings plans, primarily effective in 2025, to help Americans save more and plan for a secure retirement.

The Secure 2.0 Act’s provisions are designed to make it easier for individuals to save for retirement, reduce barriers to saving, and increase access to retirement plans. Key features include:

Increased catch-up contributions for individuals aged 50 and older
Expanded automatic enrollment and automatic escalation provisions
Creation of a new “starter plan” for small businesses
Tax credits for small businesses that adopt new retirement plans
Enhancements to 529 college savings plans

These enhancements are aimed at improving retirement security for all Americans and helping them save more for their future.