In 2019 Congress passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) to help Americans better prepare for retirement. Then the SECURE 2.0 Act was passed in the waning days of 2022, expanding the original legislation in an effort to further reduce the gaps caused by lower savings and longer lifespans. To summarize, SECURE 2.0 will roll out changes over the next few years, adding dozens of new provisions designed to make it easier for Americans to save for retirement in IRAs and workplace plans. 

This is great for people who are just getting started on their retirement planning, but what does it mean for people who have been investing for years, or are already retired? We’ll break it down for you.

What Is the SECURE 2.0 Act?

The SECURE 2.0 Act will be making changes gradually, with some provisions kicking in this year and others going into effect through 2027. Here are the main ways these changes could affect your retirement:

Automatic 401(k) Enrollment

For any retirement plans starting after December 31, 2024, eligible employees will be automatically enrolled into a retirement savings plan through their employer. Instead of opting in to a 401(k), you’ll have to opt out.

For those who started retirement savings a long time ago, the new Section 604 has made some changes to how employers contribute as well. Under the new provision, employers’ contributions can now be made directly into an employee’s Roth 401(k). It’s optional so employees can choose this plan if employers offer it. 

Changes to Required Minimum Distributions

Required minimum distributions (RMDs) are the minimum amounts that IRA and retirement plan account owners generally must withdraw annually starting when they reach the age of 72. Under the new SECURE 2.0 Act, for people who turned 72 in 2023 or later, the age for required distributions has been raised from 72 to 73, and it will rise to 75 in 2033. 

Additionally, the new act decreased the penalty for not taking RMDs from 50% to 25%. If corrected within two years, the penalty will drop to 10%. Starting this year, RMDs will be eliminated altogether from non-IRA Roth accounts, including Roth 401(k) plans. 

In other words, people now have even more time to grow their retirement funds. One thing to keep in mind, however: If you push back your retirement payouts, you’ll have to withdraw more funds in a shorter period of time, which could impact your tax rate.

Higher Catch-Up Contributions

People aged 50 or older can make a $7,500 catch-up contribution to a workplace plan. Section 109 states that starting January 1, 2025, the catch-up contribution to workplace plans increases to $10,000 annually for those aged 60 to 63 (indexed for inflation). For simple IRAs, the catch-up contribution limit will increase to $3,500 (up from $3,000) this year as well.

Also, starting in 2026, Section 603 states that all catch-up contributions must go into Roth accounts in after-tax dollars if you’re 50 or older and earned more than $145,000 the previous year. IRAs currently allow a $1,000 catch-up contribution if you’re 50 or older, but the amount will be indexed to inflation starting this year.

Emergency Savings/Hardship Withdrawals

Starting this year, employers can offer non-highly compensated employees (NHCEs) the option to link their retirement plan to an emergency savings account. (According to the IRS, an NHCE is anyone who doesn’t own at least 5% of the company or earns less than $150,000.) Annual contributions are limited to $2,500 (or less, as set by the employer), and the first four withdrawals a year aren’t subject to taxes or penalties, according to Section 127.

Along similar lines, the SECURE 2.0 Act makes it possible for account holders to withdraw from their 401(k) plans or IRAs for emergency expenses without incurring hefty penalties and a 10% early distribution tax. Only one distribution of up to $1,000 per year is allowed, and the funds must be repaid within three years. If the funds haven’t been repaid within the three-year period, no additional hardship withdrawals can be made.

Saver’s Tax Credit

Starting in 2027, low- to middle-income earners will be eligible for a federal matching contribution of up to $2,000 annually, or $4,000 for married couples. This replaces the Saver’s Credit with the “Saver’s Match,” pivoting from a tax credit on your return to a federal contribution that gets deposited into your IRA or employer-sponsored retirement plan.

Top image by c-George from Getty Images, via Canva.com.


More on Retirement and Finances: