In 2022, we took an
early look at the Secure 2.0 Act as the draft legislation worked its way through Congress and analyzed the potential impacts that the final bill might have on retirement savings. Secure 2.0 was eventually signed into law on December 29, 2022, and many of its provisions have already become effective or are now starting to take effect. Let’s now take a look at Secure 2.0’s impacts in the year 2024 and beyond, including updates on provisions we highlighted in our previous post.
Provisions that took effect as of January 1, 2024, include:
- Employers may treat an employee’s qualifying student loan repayments as an elective deferral or after-tax contribution for purposes of the plan’s matching contribution.
- Participants may access up to $1,000, once a year, from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalty.
- Individuals may set up a Roth emergency savings account with up to $2,500 per participant.
- Survivors of domestic abuse may withdraw the lesser of $10,000 or 50% of their retirement account without penalty.
After December 31, 2024, catch-up limits for 401(k), 403(b), and 457 plan participants aged 60 to 63 have increased to the greater of $10,000 or 150% of the “standard” catch-up amount for that year.
Looking further ahead, provisions that take effect as of January 1, 2025, include:
- For new plans, employers must automatically enroll employees in their 401(k) or 403(b) plan at a rate of at least 3%, but no more than 10%. Enrolled workers' contribution rates would then be automatically increased by 1% each year until their contribution rate reaches 10% annually. Excluded from this requirement are businesses with 10 or fewer employees, those in business for less than three years, church plans, and government plans. Employees can opt out if they choose.
- Long-term part-time employees (those having worked at least 500 hours for two consecutive years) must be allowed to participate in a company’s retirement savings plan.
Finally, much further down the road in 2033, the starting age for Required Minimum Distributions (RMDs) will start at age 75.
Guidance continues to be published for Secure 2.0 provisions. As expected, these provisions, along with others that made it into the final version of Secure 2.0, have brought significant improvements to retirement savings options, as well as the need to continue to review your plan options and document them in operation.