The SECURE Act 2.0, passed as part of the Consolidated Appropriations Act of 2023, introduces significant updates to retirement planning. Changes made for 2025 and beyond are designed to encourage savings, offer flexibility and enhance retirement security for Americans.
Here are the five most crucial updates:
Increased Catch-Up Contributions for Ages 60-63
Starting in 2025, individuals aged 60 through 63 can make elevated catch-up contributions to their employer-sponsored retirement plans if permitted by the plan. This increase raises the catch-up contribution limit to $10,000 or 150% of the standard age 50 catch-up amount ($11,250 for 2025). This change empowers individuals nearing retirement to boost their savings significantly during their final working years.
Catch-Up Limits for SIMPLE IRAs
From 2025 onward, participants aged 60 to 63 enrolled in SIMPLE IRA plans may see an increased catch-up contribution limit. This will rise to $5,000 or 150% of the regular age 50 catch-up contribution limit ($5,250 for 2025). Additionally, these limits will be adjusted annually for cost-of-living increases, ensuring that savings keep pace with inflation.
Automatic Enrollment for New 401(k) Plans
SECURE Act 2.0 mandates automatic enrollment for new 401(k) plans established on or after December 29, 2022. This feature will become effective in 2025, ensuring employees are automatically enrolled in workplace retirement plans unless they opt out. Automatic enrollment aims to increase participation rates and help more individuals save for their future.
Tightened Withdrawal Rules for Inherited IRAs
For most non-spouse beneficiaries who inherited an IRA from someone who passed away on or after January 1, 2020, SECURE Act 2.0 requires all funds to be withdrawn within ten full calendar years following the individual’s death. This rule emphasizes a more accelerated distribution schedule, affecting estate planning strategies for beneficiaries of inherited IRAs. Annual distributions are now required for those who inherit a traditional IRA from someone who passed away after their Required Beginning Date. This annual distribution requirement had been waived in prior years through a series of IRS notices but is now enforced effective for 2025.
Improving Coverage for Part-Time Workers (Section 125 – 2155)
The original SECURE Act created a dual-eligibility track for employees to be mandatory participants in a 401(k) plan. Previously, employees had to work at least 1,000 hours in a single year to qualify. However, effective for plan years beginning in 2024 or later, the original SECURE Act says that individuals with 3 or more consecutive years of 500+ hours of service (since 2021) are also mandatory participants. SECURE Act 2.0 takes that 3-year requirement and shortens it to ‘just’ 2 years, effective in plan years starting in 2025 or later (which would appear to mean that the 3-year requirement is still in effect for plan years starting in 2024, while the 2-year requirement would kick in the following year in 2025).
Why These Changes Matter
The updates in SECURE Act 2.0 reflect a legislative effort to modernize retirement savings, make them more inclusive, and address common financial challenges savers face. Whether you’re just starting your retirement savings journey or planning for your final working years, understanding these changes can help you optimize your strategy and secure a more comfortable retirement.
Final Thoughts
As these changes roll out, you must review your retirement plan regularly, consult your Sequoia Financial Group advisors, and ensure you’re taking full advantage of the opportunities provided by SECURE Act 2.0. Staying informed and proactive will help you navigate the evolving retirement landscape effectively.