Jim Probasco has 30+ years of experience writing for online, print, radio, and television media, including PBS. His expertise includes government programs and policy, retirement planning, insurance, family finance, home ownership and loans. He has a bachelor's from Ohio University and Master's from Wright State University in music education.
Published April 01, 2022On Dec. 23, 2022, the U.S. Congress passed the Securing a Strong Retirement Act of 2022, also known as SECURE Act 2.0 since it builds on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. It was signed into law by President Biden on Dec. 29, 2022.
"By expanding automatic enrollment in employer-provided retirement plans, simplifying rules for small businesses, and helping those near retirement save more for longer, this legislation will help increase Americans’ access to retirement funds and help families save for the future," said House Majority Leader Steny Hoyer, D-Md. He spoke of the act in a Dear Colleague letter sent on March 25, ahead of the March 29 House vote, where the bill passed 414-5.
Learn more about the important retirement plan changes made by the SECURE Act 2.0 below.
SECURE Act 2.0 requires employers to automatically enroll eligible newly hired employees in new defined contribution plans at a pretax contribution rate of 3% of the employee's pay with an annual bump of 1% up to at least 10% (but no more than 15%).
SECURE Act 2.0 automatic enrollment applies only to new 401(k) and 403(b) plans for plan years after Dec. 31, 2024.
Small businesses with 10 or fewer employees, those in business for less than three years, church plans, and government plans are also exempted from the automatic enrollment specification. For affected companies, employees who do not choose an investment election will be enrolled in a qualified default investment alternative (QDIA).
SECURE Act 2.0 keeps the existing 401(k) and 403(b) plan catch-up contribution limits for those age 50 through 59, but increases the annual catch-up amount to $10,000 or 150% of the regular catch-up amount for participants ages 60 through 63, starting in 2024. The higher limit would also be indexed for inflation in future years. Under current law, the 2023 limit on catch-up contributions for employees who have reached age 50 is $7,500, indexed annually for inflation, for a total contribution limit of $30,000.
The SECURE Act 2.0 also provides that, starting in 2024, certain catch-up contributions to employer-sponsored plans must be made to Roth accounts, meaning that these contributions are made with post-tax dollars that can be withdrawn tax-free after retirement. Under current IRS rules, contributions can be made on either a pretax or Roth basis (if permitted by the plan sponsor).
The current catch-up amount for individual retirement account (IRA) contributions is $1,000 for individuals 50 and older. SECURE Act 2.0 indexes this limit to inflation starting in 2024. The catch-up limit for SIMPLE plans is raised from $3,000 to $5,000 and indexed for inflation.
Currently, employer matching contributions must be paid into pretax 401(k) accounts. Under SECURE Act 2.0, starting in 2023, sponsors could allow employees to elect that some or all of their matching contributions be treated as Roth contributions. These post-tax contributions would not be excluded from employees' gross taxable income.
The SECURE Act of 2019 increased the age at which participants had to begin taking required minimum distributions (RMDs) from their employer-sponsored defined contribution plans and traditional (non-Roth) individual retirement accounts (IRAs) to 72, from 70½. SECURE Act 2.0 further increases the age for starting RMDs to:
The original 2019 SECURE Act set a 3-year timeline, beginning in 2021, for part-time workers to be able to contribute to their employers' 401(k) plan. SECURE Act 2.0 shortens that from three years to two years for plan years beginning after Dec. 31, 2024.
SECURE Act 2.0 legalizes the IRS-endorsed practice of employers making matching contributions based on employees' student loan payments, even if the employees are not making retirement plan contributions. This action cleans up concerns about compliance since current law doesn't specifically authorize the practice.
The SECURE Act 2.0 will also: