Congress passed the SECURE 2.0 Act in December 2022 as part of a $1.7 trillion omnibus spending package.¹ The act, which includes a provision to expand automatic enrollment in retirement plans, builds on the original Setting Every Community Up for Retirement Enhancement (SECURE) of 2019.² Many key components go into effect this year, which can have a significant financial impact for many Americans. 

The SECURE 2.0 Act aims to help Americans better prepare for their financial future while strengthening the retirement system for both employers and employees. The key provisions that go into effect in 2025 include mandatory auto-enrollment into new retirement plans, matching federal contributions, and an increase to the required minimum distribution (RMD). 

What is the SECURE 2.0 Act?

The SECURE 2.0 Act is designed to enhance the retirement savings experience for working Americans. Some of its key elements focus on incentivizing people to save more and prioritize long-term goals.³

What’s in the SECURE 2.0 Act?

There are several key provisions to the SECURE 2.0 Act that impact retirement spenders and savers alike. A few stand out as having the largest impact on working Americans getting ready for retirement. 

Read More: Money changes to expect in 2025

Expansion to automatic enrollment

The SECURE 2.0 Act requires employers who establish a new 401(k) or 403(b) plan as of January 1, 2025, to automatically enroll all new employees. Employees must be enrolled at a rate of at least 3%, which would increase annually until they reach at least 10%. Workers have the option to opt out or choose a lower or higher deferral rate that fits their needs.
New businesses (three years or fewer) and small employers (10 or fewer employees) are excluded.⁴ 

A chance to play more catch-up

Under the SECURE 2.0 Act, people will have more room to play catch-up if they’re nearing retirement. Right now, people age 50 and older can save an extra $7,500 in catch-up contributions in most retirement plans.

As of January 1, 2025, the amount savers ages 60 to 63 will be able to contribute is now the greater of $10,000 or 150% of the current catch-up limit.⁵

Under the new law, beginning in 2024, catch-up contributions will have to be made on a Roth basis, except for people who earn $145,000 or less.⁶ 

Raising the RMD age

SECURE 2.0 Act raises the required minimum distribution (RMD) age (which is when workers must begin taking withdrawals from their RMD-subjected accounts) from 72 to 73. In addition, the RMD age will increase to 75 in 2033.⁷ Not all retirement accounts are subject to RMD rules, however, so check with a financial professional for more specific guidance.

In addition, SECURE 2.0 Act also reduces the tax for failure to take an RMD from 50% to 25% (and potentially even 10% in certain instances) of a missed RMD.

Help with student loans

Many borrowers choose paying back their debt over saving for retirement. Under the SECURE 2.0 Act, they may not have to make a choice. SECURE 2.0 Act allows companies the option to match student loan payments as if they were regular elective deferrals and deposit their matching contribution into the employee’s retirement account.⁸

Flexibility with 457(b) plans

For those in a 457(b) plan, SECURE 2.0 Act eliminates the “first day of the month” stipulation that obligates individuals to make a deferral election prior to the beginning of the month for it to become effective.⁹ Now, participants have more flexibility to change their contribution amounts at any point during the month, bringing these plans into closer alignment with other retirement plans like 401(k)s and 403(b)s.

Emergency savings

Because things don’t always go as planned, there is now a plan in place to help people who may need some extra cash. Today when faced with an emergency, many people apply for a loan, take a hardship withdrawal, or use a credit card. Those options can come with penalties, loss of potential growth, or high interest rates. SECURE 2.0 Act gives companies the option to offer an emergency savings account as part of their 401(k) program.¹⁰ 

If provided, employees would be able to access the account at least once a month to cover unforeseen expenses — without incurring any taxes or penalties. Participants can contribute until the account reaches a balance of $2,500. If the plan provides for matching contributions, these emergency savings contributions would be eligible for a match as well.

Read more: How much should you have in an emergency fund? 

Perks for part-time workers

Part-time employees won’t have to wait as long to save under SECURE 2.0 Act. As of January 1, 2025, long-term, part-time workers are eligible to enroll in their employer’s retirement plan after two years, rather than the previous three-year requirement.¹¹ According to current law, a “long-term part-time” employee is anyone who has worked at least 500 hours (but fewer than 999) within three consecutive years. 

Benefits for small businesses

Small businesses can benefit, too.¹² Existing start-up credits are expanded, and a new tax credit could help some small employers offset company contributions to retirement accounts for their employees.

Improvements to saver’s credit

The saver’s credit is a tax credit for middle- to low-income earners who are contributing to their retirement accounts. Created in the early 2000s, the saver’s credit provides people who fall below certain income levels with a greater incentive to build their nest egg by providing a credit that reduces the amount of taxes owed.¹³

SECURE 2.0 Act expands the existing saver’s credit and converts it into a federal match deposited into a retirement plan account or an IRA. The federally funded match is up to 50% of applicable contributions (capped at $1,000) for individuals who fall below certain income levels.¹⁴

The bottom line

The SECURE 2.0 Act is a comprehensive bill and entails much more than what is listed and described above. For a more detailed analysis of SECURE 2.0 Act, it may be wise to contact a financial advisor or visit www.congress.gov.