top of page
Search

SECURE 2.0 Act: Timeline and Key Changes

The SECURE 2.0 Act, a follow-up to the original SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019, was enacted to enhance retirement savings opportunities and provide greater flexibility for individuals planning for retirement. The changes under SECURE 2.0 were introduced gradually, with some provisions taking effect in 2023 and others rolling out over the next few years, including significant changes in 2024.


Timeline of SECURE 2.0 Act

  • December 29, 2022: The SECURE 2.0 Act was signed into law as part of the Consolidated Appropriations Act of 2023.

  • January 1, 2023: The first set of provisions under SECURE 2.0 began to take effect, with additional changes scheduled for subsequent years.


Key Changes Introduced by SECURE 2.0


1. Increase in the Age for Required Minimum Distributions (RMDs)

  • What Changed: The age at which retirees must begin taking RMDs from their retirement accounts increased. It rose from 72 to 73 starting in 2023, and it will increase further to 75 beginning in 2033.

  • Impact: This change allows retirees more time to grow their retirement savings before being required to withdraw funds.


2. Enhanced Catch-Up Contributions

  • What Changed: Starting in 2024, individuals aged 50 or older who earn more than $145,000 per year are required to make their catch-up contributions to a Roth 401(k) account, meaning these contributions will be made with after-tax dollars.

  • Impact: This provision affects high-income earners, providing a tax-free growth opportunity for their additional contributions.


3. Emergency Savings Accounts Linked to 401(k) Plans

  • What Changed: Beginning in 2024, employers can offer emergency savings accounts linked to their 401(k) plans, allowing employees to save up to $2,500 per year. These funds can be accessed without penalty for qualifying emergencies.

  • Impact: This feature encourages workers to build an emergency fund alongside their retirement savings.


4. Penalty-Free Withdrawals for Emergencies and Special Circumstances

  • What Changed: SECURE 2.0 introduces several new rules allowing penalty-free withdrawals from retirement accounts:

    • Disaster Relief: Participants affected by federally declared disasters can withdraw up to $22,000 without the 10% early withdrawal penalty.

    • Emergency Personal Expenses: Individuals can withdraw up to $1,000 per year for emergency personal expenses, penalty-free.

    • Domestic Violence Victims: Victims of domestic violence can withdraw up to $10,000 or 50% of their 401(k) balance, penalty-free.

  • Impact: These provisions provide critical financial relief for individuals facing emergencies or crises.


5. Reduction in RMD Penalties

  • What Changed: The penalty for failing to take RMDs was reduced from 50% to 25% starting in 2023, with a further reduction to 10% if corrected promptly.

  • Impact: This change reduces the financial burden on retirees who may accidentally miss their RMDs.


6. Expanded Roth Options

  • What Changed: SECURE 2.0 expanded Roth options within retirement plans. As of 2023, SIMPLE and SEP IRAs can now accept Roth contributions. Additionally, starting in 2024, the mandatory RMDs are no longer required for Roth accounts in employer-sponsored retirement plans.

  • Impact: This change offers more flexibility for tax-free growth in retirement savings.


7. Automatic Enrollment and Escalation

  • What Changed: Starting in 2025, most new 401(k) and 403(b) plans will be required to automatically enroll eligible employees, with a contribution rate starting at 3% and escalating 1% per year up to at least 10% (but not more than 15%).

  • Impact: This change aims to increase retirement savings participation and boost overall savings rates.


8. Student Loan Matching

  • What Changed: Beginning in 2024, employers can match employee student loan payments with contributions to their retirement accounts, helping employees who are paying off student debt to also build retirement savings.

  • Impact: This provision supports younger workers who may otherwise struggle to save for retirement while repaying student loans.


The SECURE 2.0 Act introduces a wide range of changes aimed at improving retirement savings and offering more flexibility to workers and retirees. These changes reflect a broader effort to adapt retirement policies to the needs of today's workforce, ensuring that more Americans can achieve financial security in retirement. Whether you're just starting your career or nearing retirement, understanding these updates is crucial for maximizing your retirement strategy.



If you are ready to take your investments to the next level, contact us and Get Started today!



Comments

bottom of page