What the SECURE 2.0 Act means for you and your retirement

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Retirement savings flexibility is trending higher in 2023.

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Retirement plans aren’t usually associated with “exciting developments,” but the updated SECURE Act introduced changes to help support individuals at different stages of their financial journeys. Younger workers just starting out, older savers planning for retirement, and families juggling education and retirement goals can all benefit. Signed into law in December 2022, these updates aim to make saving for retirement easier and accessing funds more flexible.

The original Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in 2019, introduced several changes that benefited savers. The new version—commonly called SECURE 2.0—builds on that foundation with dozens of additional provisions. Although the updates offer significant potential advantages, the specifics vary depending on your plan and situation. Review the details with your employer or talk with a financial advisor to understand how these changes might affect you.

Automatic enrollment in a company’s retirement plan is already common in many workplaces, but SECURE 2.0 makes this feature mandatory for most new employer-sponsored plans. Starting January 1, 2025, eligible employees in new 401(k) or 403(b) plans must be automatically enrolled with an initial contribution rate of at least 3% of their salaries (and no more than 10%).

The law also requires annual 1 percentage point increases in contribution rates until they reach at least 10% (but no more than 15%). Although employees can opt out, the default auto-enrollment and gradual increases are designed to significantly boost participation and savings over time.

Certain employers—such as start-ups, companies with fewer than 10 employees, and churches—are exempt from the rule.

Under the original SECURE Act, long-term, part-time employees could join company 401(k) plans after three consecutive years of working at least 500 hours annually. Beginning in 2025, the eligibility period is reduced to two consecutive years with the same requirement for the number of hours worked.

SECURE 2.0 introduced several changes to catch-up contributions for retirement accounts, offering older savers more opportunities to increase their savings based on age and income.

Parents often face penalties and taxes when withdrawing funds from a 529 college savings plan for expenses unrelated to education. But what happens if funds remain in the account—for example, if your child doesn’t attend college or receives scholarships that cover most expenses? Starting in 2024, unused 529 funds can be rolled over into a Roth IRA for the student, provided the 529 account has been open for at least 15 years.

Rollover amounts must adhere to Roth IRA contribution limits for each year, and the lifetime total can’t exceed $35,000. To ensure compliance and avoid penalties, verify the rollover details with the financial institution managing the Roth IRA and follow all applicable rules.

If you’re focused on paying off student loans, saving for retirement might feel out of reach—but a change in retirement rules can help.

Beginning in 2024, student loan payments are treated as retirement contributions, making them eligible for employer matching. If you’re paying a set amount toward student loans each month, your employer can contribute a matching amount to your workplace retirement account.

For years, a thorn in the side of many retirement savers was the requirement to withdraw a certain amount every year from a tax-deferred account such as a 401(k) or traditional IRA.

In 2019, the SECURE Act raised the age for required minimum distributions (RMDs) to 72 from 70½. SECURE 2.0 further increased the RMD age to 73 starting in 2023, with plans to raise it again to 75 by 2033.

This change benefits those who prefer to let their retirement savings grow a little longer before making withdrawals.

Roth IRAs are funded with after-tax dollars and aren’t subject to RMD rules, unlike traditional, SEP, and other tax-deferred IRAs.

Previously, employer-sponsored Roth accounts, such as Roth 401(k)s, were subject to required withdrawals. But rules under SECURE 2.0 expanded the Roth exemption to include employer-sponsored Roth accounts, effective January 1, 2024.

Before SECURE 2.0, savers participating in Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs were limited to traditional, tax-deferred accounts. As of January 1, 2023, SECURE 2.0 introduced Roth SEP and SIMPLE IRAs, allowing savers to make after-tax contributions, avoid RMDs, and enjoy tax-free withdrawals in retirement.

As of 2024, companies can include an emergency savings account as part of their retirement plans. The feature helps employees access emergency funds without tapping into 401(k) money before age 59½—a move that could result in taxes and penalties.

These accounts are structured like a Roth, allowing employees to deposit after-tax money. Withdrawals, up to four a year, are tax-free, and employees can save up to $2,500 a year (though employers may set a lower cap). If you leave your job, you can take the emergency savings in cash or roll it into a Roth 401(k) or Roth IRA.

Restrictions apply, so check with your employer for details about how the plan works.

Another potential option if you need money to cover a financial curveball is a penalty-free loan of $1,000 from your 401(k) or IRA once a year. This option, which took effect in 2024, is generally considered a last resort and meant for unforeseeable expenses, not for routine costs such as car repairs.

Note: This is a loan, not a withdrawal. If you don’t repay yourself within three years, you’ll be ineligible for further emergency distributions.

Starting in 2027, the saver’s credit—a tax incentive to encourage low- and middle-income earners to contribute to retirement accounts—will transition to a program called saver’s match. It will offer a federal retirement contribution instead of a tax credit. The change is designed to provide targeted workers with a direct boost to their retirement savings.

The saver’s match will pay up to 50% of the first $2,000 you deposit in your retirement account, effectively giving eligible individuals up to $1,000 a year. You can decide which retirement account receives the match, but it cannot be a Roth account.

The match phases out based on income ranges:

The saver’s credit was first introduced in 2002. It reduces the amount of tax owed for eligible contributions to IRAs and 401(k) accounts. Although minor adjustments to the saver’s credit are expected before 2027, the introduction of the saver’s match represents the most significant shift in how the program works.

SECURE 2.0 introduces changes designed to make it easier for millions of workers in the U.S. to save for retirement. If the provisions seem confusing, reach out to your human resources department or financial advisor to better understand how the changes may affect your retirement goals and what actions you need to take.

Although increased flexibility can be beneficial, it could also lead to what some experts call “retirement savings leakage”—dipping into your retirement savings during times of financial hardship. Such flexibility can be helpful in emergencies, but it’s essential to consider the long-term impact. Retirement plan rules are designed to safeguard your future financial security by discouraging early withdrawals.