SECURE 2.0 Act: How the New Retirement Bill Affects You
The new bill expands access to retirement savings vehicles such as 401(k)s while offering ease and incentives to employers.
SECURE 2.0 Act, a retirement reform bill, has passed into law.
The bill aims to expand access to retirement savings vehicles while offering ease and incentives to employers administering programs.
We discuss what these changes could mean to retirement accounts.
Recognizing the challenges many Americans face in saving for retirement, President Biden signed the SECURE 2.0 Act into law on December 29, 2022. With 92 new provisions aimed at promoting retirement savings, it builds on the SECURE Act of 2019 and combines bills from the House and the Senate.
Why a Retirement Bill Now (and Why Should I Care)?
Offering retirement benefits to employees has become an important incentive that businesses use to attract and retain employees, especially in a tight labor market.
And retirement accounts play a crucial role in people’s financial plans. A 2022 Employee Benefits Research Institute study found that more than four in five workers expect their workplace retirement plan to be an income source in retirement, while almost half of retirees are using their plan savings as an income source.¹
The Pre-SECURE 2.0 Act State of Retirement Savings
Before the SECURE 2.0 Act was passed, there were big gaps in retirement savings. While many workers had retirement accounts, there was still a need for people to save more.
Many people regret not saving more and worry about running out of money in retirement. On top of that, U.S. Census data reports indicate significant savings gaps when looking at gender and race.
4 in 5 workers expect their workplace retirement plan to provide income in retirement and nearly half of retirees use it for income now.¹
35% of plan participants say their biggest regret is not saving enough for retirement, and 40% worry about running out of money.²
44% of women and 48% of men have retirement accounts. Only 37% of non-Hispanic Black and 28% of Hispanic individuals have an account.³
When people make the choice to participate in a plan, they use it: In 2020, 92% of 401(k)-style account owners and 81% of IRA account owners took advantage of their retirement accounts and made contributions.³
Therefore, a retirement bill that increases access and incentivizes plan adoption and participation was a way for legislators to champion their constituents' financial well-being while also addressing gender and racial inequities.
A Handy Cheat Sheet of SECURE 2.0 Act’s Changes
This table lays out a few of the significant new retirement rules in the SECURE 2.0 Act, comparing to the previous law and when each new provision goes into effect.
It’s important to note that some Secure 2.0 Act provisions may require additional guidance from the IRS before implementation.
401(k) and 403(b) plans may use automatic enrollment and escalation features, but they are not required to do so.
New 401(k) and salary reduction 403(b) plans adopted on or after December 29, 2022, must include automatic enrollment and automatic escalation. Participants who are automatically enrolled have 90 days to elect to withdraw those automatic deferrals.
Plan years beginning after December 31, 2024
Eligibility of part-time employees
Part-time employees with at least 500 hours 3 years in a row are eligible to contribute to that employer’s 401(k) plan.
Part-time employees with at least 500 hours 2 years in a row will be eligible to contribute to that employer’s 401(k) plan. The same eligibility requirements will apply to 403(b) plans.
Plan years beginning after December 31, 2024
Required minimum distributions
Retirees must take required minimum distributions (RMDs) starting at age 72
The age for RMDs increases to 73 in 2023 and 75 in 2033.
As of January 1, 2023, the RMD age is 73. Then on January 1, 2033, the age increases to 75.
IRA owners aged 50 and above can make additional annual catch-up contributions of $1,000 to an IRA.
The $1,000 catch-up contribution amount for IRA owners aged 50 and over is indexed to IRS cost-of-living adjustments (COLA).
Tax years beginning after December 31, 2023
SEP/SIMPLE Roth contributions
Contributions made to SEP or SIMPLE IRAs were made on pre-tax basis.
Additional IRS guidance is needed, but SEP and SIMPLE IRA plan sponsors have the option to permit Roth contributions.
Tax years beginning after December 31, 2022
Access to retirement funds
In many cases, a 10% early withdrawal penalty applies when savers accessed funds from their retirement accounts before age 59½.
Participants may access up to $1,000 per year from retirement savings for emergency personal or family expenses without penalty.
Survivors of domestic violence or a federally declared natural disaster may also access retirement funds (within certain limits) without penalty.
January 1, 2024
Employer matching contributions on student loan payments
If an employee makes student loan payments instead of contributing to a 401(k) or 403(b) plan, employers cannot make matching contributions to a retirement plan.
Under certain conditions, employers may make matching contributions to an employee’s 401(k) or 403(b) plan based on that employee’s student loan payments.
Plan years beginning after December 31, 2023
The Saver’s Tax Credit gives low- and moderate-income taxpayers a credit on the first $2,000 (or $4,000 for joint filers) they contribute to an IRA or employer-sponsored retirement plan.
Instead of providing a tax credit, the federal government makes a matching contribution directly to the taxpayer’s IRA or employer-sponsored retirement plan.
January 1, 2027
Make the Most of SECURE 2.0 Act’s Changes
It’s a good idea to consider how these changes may impact you as new provisions go into effect in the coming years.
For businesses and organizations, it might mean improved economics and ease of offering retirement benefits and administrative changes to existing plans. It also will mean updating plan documents and participant education materials.
Depending on the plan participant’s circumstances, it could mean updating RMD withdrawal strategies, catch-up contributions and student loan matching capabilities. For instance, if you’re paying off student loans, you may want to investigate whether you qualify for an employer match for your retirement account. Or if you’re over age 50, you may want to increase your catch-up contributions.
Whatever your individual situation, the hope is that this new retirement bill will allow you to save more for retirement and feel more financially secure in the future.
2022 Retirement Confidence Survey (ebri.org), Employee Benefit Research Institute, 2022.
American Century Investments 9th Annual Survey of Retirement Plan Participants, July 2021.
Who Has Retirement Accounts? (census.gov), United States Census Bureau, August 31, 2022.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
Please consult your tax advisor for more detailed information regarding the Roth IRA or for advice regarding your individual situation.
Taxes are deferred until withdrawal if the requirements are met. A 10% penalty may be imposed for withdrawal prior to reaching age 59½.