What Secure 2.0 Act Means for Your Retirement

The Secure 2.0 Act, which became law at the end of 2022, aims to help more people prepare for retirement — in part by making government incentive programs more forgiving to people who need help catching up on their savings.

While many parts of the legislation are already in effect, certain provisions will continue to be phased in and implemented over the coming years, with a number of new changes on the horizon for 2025.

Here are the details about Secure 2.0 and an overview of the ways it might affect you.

What is the Secure 2.0 Act?

The Secure 2.0 Act is a federal measure passed in late 2022 to encourage Americans to save for retirement. Among the many changes it makes to retirement policy, the law pushed back the required minimum distribution age for individual retirement accounts (IRAs). The measure also increases catch-up contribution limits for people ages 60 to 63.

Why "2.0"? It’s a continuation of the original Secure Act of 2019, which changed the way Americans saved and withdrew money from their retirement accounts. Secure 2.0 covers several retirement issues, such as hardship withdrawals and emergency savings, that weren’t part of the original Secure Act. These changes may help Americans save for retirement while balancing current expenses.

Secure 2.0 provisions that are already in effect

A new 401(k) employer contribution option

In the past, employees with a Roth 401(k) typically had their employer contributions made into a separate, pretax account such as a traditional 401(k). With Section 604 of Secure 2.0, employees can now choose to have their employer contributions be made into the Roth account, if offered by their employer. This does mean that the money will count as earned income and incur taxes now, but qualified distributions in retirement will be tax-free, similar to how they are treated with a Roth IRA.

Required minimum distributions (effective 2023, 2024 and 2033)

Under the Secure 2.0 Act, the rules and penalties around required minimum distributions (RMDs) have also changed.

• The age for RMDs was raised from 72 to 73 in 2023, and it will rise again to 75 in 2033.

• As of 2023, the penalty for not taking required distributions decreased from 50% to 25%. If the error is corrected in time, the penalty drops to 10%.

• As of 2024, required pre-death distributions will be eliminated altogether from non-IRA Roth accounts, including Roth 401(k) plans.

These changes mean people will now have even more time to grow their retirement funds. However, pushing back your retirement payouts can come with a caveat. For example, taking distributions later could mean you’ll have to withdraw more funds in a shorter period of time, a decision that could be more expensive depending on your tax rate at the time.

Education savings and loan debt

As of 2024, parents saving for their children’s college funds gained some new flexibility with their 529 plans. After 15 years, funds from the 529 plan can be rolled into a Roth IRA for the beneficiary. The amount rolled over each year can’t exceed the annual IRA contribution limit, up to a lifetime limit of $35,000.

People with student loans may be able to take advantage of a new incentive under the Secure 2.0 Act to balance saving for retirement and repaying student loans instead of choosing one or the other. As of 2024, when you make a qualified student loan repayment, your employer can opt to “match” that amount into your 401(k) plan, 403(b) plan or SIMPLE IRA. The catch here is that employers can choose whether or not to offer this option.

» Learn more: See the IRA contribution limits

Emergency withdrawals

One drawback of saving for retirement is that you typically can’t touch the funds until retirement age without incurring hefty penalties and a 10% early distribution tax. As of January 2024, however, account holders are able to withdraw from their 401(k) plans or IRAs for certain emergency expenses without these consequences.

Only one distribution of up to $1,000 per year is allowed, and you have the option to repay the funds within three years. If you don’t repay the distribution, no other emergency distributions are allowed during the three-year repayment period.

Emergency savings

Building an emergency fund is crucial to ensuring you can cover any surprise expenses, but between daily living expenses and the added responsibility of saving for retirement, it can be hard to get started.

As of 2024, employers that provide a defined contribution retirement plan may also offer a pension-linked emergency savings account for employees who are not highly compensated, with employees automatically opted in at up to 3% of their salary.

The balance of the account is capped at $2,500 (or less, depending on employer guidelines), and contributions can stop or be directed to a Roth-defined contribution plan, if available, until the balance drops below the cap. The first four withdrawals from this account aren’t subject to fees or charges, and after employees leave the company, they can choose to take the funds in cash or roll them into a Roth-defined contribution plan or Roth IRA.

Expansion of Roth accounts

Before 2023, SIMPLE IRA plans, which are retirement savings plans for small businesses and self-employed people, did not permit Roth contributions. This meant that the contributions to a SIMPLE IRA were tax-deductible, but withdrawals would be taxed. Secure 2.0 amended this provision to allow for Roth contributions, where taxes are paid upfront on contributions, and qualified withdrawals later on are tax-free.

Secure 2.0 also made some changes to the simplified employee pension (SEP) plan to allow participants to allocate either their or their employer’s contributions on a Roth basis rather than pretax.

Secure 2.0 provisions effective 2025 or later

Automatic 401(k) enrollment (effective 2025)

If your employer offers a retirement plan, such as a 401(k) or 403(b) plan, you typically have to opt in to participate. Starting Jan. 1, 2025, this will no longer be the case.

Instead, once new employees are eligible, employers will automatically enroll them in a retirement savings plan, and existing employees will be auto-enrolled in a plan if they are not currently participating. Most employers must abide by these new regulations, but there are some exceptions in cases of church plans, government plans and small businesses with 10 or fewer employees.

The initial contribution must be at least 3% of pretax earnings but not more than 10%. Following the initial year, the employee’s contribution will increase by 1% annually until it hits 10% to 15%. Employees will have to opt out if they don’t want to participate in their company’s retirement plan.

Catch-up contributions (effective 2025)

Catch-up contributions allow people age 50 and older to contribute additional money to retirement plans. With new provisions in the Secure 2.0 Act, people in this age group have a few more options to reach their retirement goals.

Starting in 2025, catch-up contribution limits to retirement plans such as 401(k)s for those on the cusp of retirement — ages 60 to 63 — will increase from $7,500 per year to $11,250. After 2025, this new limit will be indexed for inflation annually.

For SIMPLE IRAs, the catch-up contribution limit is $3,500 in 2024 and 2025 (though people with certain plans may be able to contribute up to $3,850). The newly introduced catch-up contribution for those ages 60 to 63 will be $5,250.

Roth catch-up contributions for high-earners (effective 2026)

Secure 2.0 laid out some new rules affecting 401(k) contributions for high earners — people who make over $145,000 — who are age 50 and older. It would require catch-up contributions on a Roth basis rather than pretax. However, to give participants and plan sponsors more time to prepare for this change, the IRS has pushed this requirement to begin in 2026.

Saver's tax credit (effective 2027)

The Secure 2.0 Act includes changes to the saver's tax credit, intended to give lower-income earners an extra boost toward their retirement savings.

Beginning in 2027, the tax credit will be replaced with the “saver’s match” program. Instead of getting a tax credit for contributions to an eligible retirement plan, lower-income workers will get a direct match of up to $2,000 from the federal government. While this means you won’t receive the tax break, it could also potentially result in more retirement savings.