Maximizing Benefits Under Secure 2.0 Act

Jenius Bank Team4/23/2024 • Updated 12/13/2024

Keeping up with legislative changes may help you make smart money decisions.Saving for retirement is challenging for many Americans. In fact, roughly 57 million American adults have nothing set aside for their retirement.¹ And more are far behind on their savings goals if they want to retire by age 65 and live a comfortable lifestyle.The Secure 2.0 Act was created to address some of these challenges by making saving for retirement easier. While the Secure 2.0 Act was passed in 2022, changes are being rolled out over time. Let's look at the changes in 2024 and 2025, and what they mean for your retirement savings.This information is not tax or investment advice. You should consult with a tax advisor and/or a qualified investment professional for advice specific to your particular circumstances.

Key Takeaways

The Secure 2.0 Act is rolling out new provisions over time, including several updates in 2024 and 2025.
Changes aim to help working individuals build their retirement savings more aggressively.
Some top changes in 2025 include employers automatically enrolling qualified employees in retirement plans and increases to catch-up contribution limits for workers closer to retirement.

Introduction to the Secure 2.0 Act

The Secure 2.0 Act is a revision of the 2019 Secure Act that raised the ages for required monthly distributions (RMDs) on IRAs and increased the catch-up contribution limits for people over 50. The revision was passed in 2022. The 2.0 implementation spans several years. The changes attempt to make saving for retirement easier for people of all ages.

Secure 2.0 Act Changes in 2024

Several provisions of the Secure 2.0 Act took effect in 2024. Check out the top changes to help you understand how it may impact your finances and savings goals in the future.²

Hardship Withdrawals from Retirement Accounts

Though it’s important to prioritize saving for retirement, the government understands that emergencies and tough financial situations could happen to anyone. If you have savings of any kind, using those savings instead of taking out a new loan or using a credit card could help you avoid going into debt. Under normal circumstances, withdrawing money from your retirement accounts before you reach 59 ½ years of age costs you a 10% early withdrawal penalty on what you take out.³In the 2024 update, the Secure 2.0 Act allows account holders to withdraw small sums for emergencies from their 401(k) or IRA accounts without that early withdrawal penalty. You’re able to take one distribution of up to $1,000 per year from your retirement account without having to pay the fee, provided you repay what you took out within three years of the withdrawal. The Act also allows for victims of domestic abuse who are under 59 ½ to withdraw up to $10,000 without penalty.⁴Additionally, hardship withdrawals may come from any earnings on the account in addition to your contributions.

Roth 401(k) Employer Contributions

Traditional 401(k)s allow employees and employers to contribute to retirement savings on a pre-tax basis. While the money is in the account, it grows tax-free until you make a withdrawal. When you withdraw funds, you pay taxes on each distribution. Prior to the Secure 2.0 Act, employees who had a Roth 401(k) account, which is funded with after-tax money, still received employer contributions on a pre-tax basis in a traditional 401(k) account. With the implementation of Secure 2.0, employers can choose to offer Roth matching, and if they do, employees with a Roth 401(k) can choose to have employer contributions made into their Roth account.⁵The Roth contributions from the employer are included in the employee’s income and are subject to income taxes in the year the contributions are made. Consistent with the definition of Roth accounts, the contributions and earnings aren’t subject to taxes when withdrawn in retirement.⁶While employer contributions to a Roth account are considered earned income and incur taxes now, the qualified distributions in retirement are tax-free in retirement.

Student Loan Matching

The average millennial has about $40,438 in student loan debt as of March 2024.⁷ The Secure 2.0 Act updates aim to alleviate some of that financial strain by allowing employers to match student loan payments and place the matched contributions in a retirement account. Keep in mind that employers may only contribute funds up to the annual contribution limit for each employee.⁸ This is particularly helpful for millennials who may not be as established in their careers and could have very little saved for retirement in their 30s.This is still a relatively new concept for most employers, and not every company offers a student loan match. Speak with your employer’s benefits specialist to see if you’re eligible.

Roll 529 into Roth IRA

529 accounts may help you save for your child’s education expenses, but when your child is young, you have no way of predicting if they will use the entirety of the fund on education costs. You also can’t predict that they will attend college at all. This leaves potentially thousands of dollars trapped in a plan that they can’t use without paying a penalty on the withdrawals they make. The Act’s 2024 updates helped deal with this limitation. You’re now able to roll a 529 account into a Roth IRA, provided the 529 account is at least 15 years old. However, there are limits. You can’t exceed annual IRA contribution limits when you roll funds over, and you’re only able to roll $35,000 in total into a Roth IRA.⁹

Additional Retirement Plan Changes

The update also provides changes for retirement plans for part-time employees. Employees who are working at least 500 hours per year for an employer three years in a row, starting January 1, 2021, are eligible to enroll in their company’s employer-sponsored 401(k). In 2025, that service requirement drops to two years, making it easier for people to qualify.¹⁰The update also allows IRA-holders 50 and over to make catch-up contributions with maximum amounts proportionate to the rate of inflation for the year.¹¹ As inflation rises, you may need more money to maintain your current standard of living. By indexing maximum catch-up contribution limits to inflation, you may be able to set more aside, as needed, to keep up with those economic changes.

Secure 2.0 Act Changes in 2025

In 2025, additional provisions of the Secure 2.0 Act will roll out. Below are two of the top changes to be aware of.

Automatic 401(k) enrollment

Starting December 31, 2024, the Secure 2.0 Act mandates that employers must enroll eligible employees in new 401(k) or 403(b) plans established after the act became law.¹²This stipulation requires employers to automatically enroll employees at a minimum rate of 3%, with an automatic annual increase of 1% each year until the employers predetermined maximum rate of 10-15% is achieved. Employees may opt out or adjust their deferral rate.¹³

Higher catch-up contributions

Retirement accounts allow individuals over 50 to make catch-up contributions to their accounts to help them increase their retirement savings. The catch-up contribution limits in 2024 and 2025 are $7,500.¹⁴Starting in 2025, individuals 60 to 63 years old may make additional catch-up contributions up to $11,250 in 2025.¹⁵ These additional contributions will be indexed to inflation going forward.¹⁶ For those nearing retirement, the ability to put additional funds away could help make their retirement years more secure.

Future Changes

The Secure 2.0 Act has additional regulations rolling out each year. One of the most notable is Starting in 2027, the federal government will match retirement account contributions up to $2,000 for certain low-income earners instead of offering a tax credit.¹⁷

Final Thoughts

The Secure 2.0 Act aims to make it easier for workers of all ages to save for retirement. However, for millennials it could have an even stronger impact. By making retirement saving easier, workers may be able to contribute more to retirement earlier in life and take advantage of potential growth in compounded earnings over time.

Financial WellnessRetirement

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