How SECURE Act 2.0 Affects Your Retirement

Many Americans struggle to save for retirement and balance other costs. In fact, only 34% of individuals believe that their retirement savings plan is on track.¹

The SECURE Act 2.0 builds on the success of earlier legislation and aims to alleviate challenges by expanding access to retirement plans, increasing flexibility in contributions, and promoting automatic enrollment to boost participation rates.²

The SECURE Act 2.0 introduces critical enhancements that can significantly bolster your retirement planning efforts. Here’s a breakdown of key provisions:

401k Automatic Enrollment

Starting in 2025, businesses with new 401(k) and 403(b) plans will have to automatically enroll all eligible employees in their retirement plan at a rate that’s at least 3% of pre-tax earnings, but no more than 10%.³  Employees who do not want to participate can opt out.²

Employees will also have the option to choose a Roth contribution as their employer match.³

Enhanced Tax Credits: A Boost for Small Business Retirement Plans

The SECURE Act 2.0 significantly enhances support for small businesses aiming to establish retirement plans, addressing concerns over cost and complexity.

Under the updated legislation, businesses with 100 or fewer employees that adopt a Simplified Employee Pension (SEP), SIMPLE plan, 401(k) or profit-sharing retirement plan can benefit from expanded tax credits.⁴

Originally introduced in the SECURE Act, these credits can now be applied to businesses with employees who received at least $5,000 in compensation. Moreover, the SECURE Act 2.0 introduces an additional $500 tax credit per year for three years to businesses that auto-enroll employees in their 401(k) and Simple plans.⁵

These tax credits are pivotal as they provide small businesses with a dollar-for-dollar reduction in their tax liabilities. This may help encourage wider participation in retirement planning initiatives.

Expanded Access for Part-Time Employees

SECURE Act 2.0 has broadened retirement plan access for part-time employees, acknowledging the increasing prevalence of part-time work in today's workforce. Under original provisions, employers are mandated to grant plan eligibility to individuals who have worked at least 500 hours per year for three consecutive years and meet the plan's age requirements. SECURE Act 2.0 reduced the three-year rule to two years.³

Notably, employers are not obligated to make contributions on behalf of these part-time workers, distinguishing them from their full-time counterparts. The existing eligibility threshold remains unchanged for individuals who have worked 1,000 hours in a year, ensuring continued inclusion in retirement plans.²

Increased Contribution Limits

Under the original SECURE Act, significant changes were introduced to retirement planning, including higher catch-up contribution limits and adjustments to required minimum distributions (RMDs).

Starting January 1, 2025, individuals aged 60 to 63 can contribute up to $10,000 annually to their workplace retirement plans, with these contributions indexed to inflation.³ Previously, RMDs required withdrawals to begin at age 72; however, The SECURE Act 2.0 raised the age to 73.⁶

This allows individuals to continue accumulating tax-deferred retirement savings for longer, benefiting those planning to work into their 70s and offering potential tax advantages in traditional IRAs or 401(k)s, as well as growth opportunities in Roth IRAs. (For more on various retirement accounts, read “Explaining 6 Key Types of Retirement Plans.”)

The SECURE Act 2.0’s innovative savings opportunities are designed to address the various financial challenges employees face, including inadequate retirement savings, high student loan debt, and insufficient emergency funds.

• Student Loan Payment Match: Eligible employees can receive employer contributions to their retirement accounts equivalent to their student loan payments, bolstering retirement savings while managing debt.⁷
• Emergency Savings Accounts: Employees categorized as non-highly compensated may contribute up to $2,500 annually to Roth emergency savings accounts within retirement plans. These accounts allow for up to four tax-free and penalty-free withdrawals per year, providing financial flexibility during unexpected expenses.⁸

Flexible Hardship Withdrawals

Some individuals may find it difficult to balance retirement savings and immediate financial needs. SECURE Act 2.0 allows penalty-free withdrawals of up to $1,000 per year for qualified hardships. Participants must replenish withdrawn funds within three years to retain eligibility for future hardship withdrawals.³ This offers a temporary solution for financial emergencies without compromising long-term savings goals.

Some of SECURE 2.0’s provisions will begin in the future.

Beginning in 2026, those planning on making catch-up contributions to their retirement plan who earned over $145,000 the previous year will have to put the money in a Roth account using post-tax dollars.⁹

As mentioned above, required minimum distributions will also continue to evolve. In 2033, individuals won’t have to begin taking RMDs until age 75.