Secure Act 2.0

On December 23, 2022, Congress passed the Securing a Strong Retirement Act of 2022 (Secure 2.0) as part of the Consolidated Appropriations Act of 2023, which President Biden signed into law. This Act will require many changes to your retirement plans and options.

A new category of catch-contributions is being introduced in 2025.  Employees aged 50 or older the receive the standard increase in catch-up contribution of $7,500.  The catch-up limit for employees aged 60-63 will be the greater of $10,000 or 150% of the standard catch-up limit and they increase each year with inflation.

Today, employees can choose to deposit catch up contributions in either pre-tax accounts or after-tax Roth accounts but in 2024 employees who whose compensation is more than $145,000 all catch up contributions must be deposited into a Roth account.

One of the biggest impacts to Secure 2.0 legislation is 401(k) automatic enrollments.  Employers starting new plans will have to automatically enroll participants in a 401(k) with a default contribution rate of 3% and an annual increase of 1% until they reach 10%.  If the employee does not want this, then they will be required to proactively opt out.  Small businesses with 10 or fewer employees will be required to utilize automatic enrollment in 2025.

Thanks to Secure 2.0, employees will be able to withdraw up to $1,000 without penalty as an emergency distribution and the option to repay the distribution within three years.  Employees will not be able to take out any other distribution within that three-year period until the original withdrawal is repaid. 

Big student loan payments keep many workers from being able to save for retirement. Secure Act 2.0 allows employers to consider student loan payments as elective retirement contributions for the purpose of making employees eligible for matching contributions.  Employers will still be able to put an employer matching contribution on the employee’s behalf. 

To read on for more information and understand the dates at which these changes are in effect visit The CPA Journal here or review the legislation text here.