What Is the SECURE Act 2.0?

For many, planning for retirement usually means saving and investing in vehicles like 401(k)s and individual retirement accounts (IRAs). In 2019, the United States government passed the Setting Up Every American for Retirement Enhancement (SECURE) Act, which makes it easier to prepare for your later years. And, in 2022, Congress passed the Secure Act 2.0, signed into law by President Joe Biden, a crucial update to the bill which builds upon what the original one started.

In this article, we’ll give you an overview of what the Secure Act 2.0 includes, as well as what its original purpose was. You’ll also learn how it directly impacts components in your retirement plan, such as a 401(k) or IRA. Finally, we’ll answer a handful of frequently asked questions to help clear up any lingering confusion on the topic.

What the Secure Act 2.0 Includes

The focus of the Secure Act 2.0 is to make it easier for Americans to save and invest for retirement. To accomplish this, it makes several important changes to rules surrounding retirement vehicles, such as the 401(k) and IRA. This includes modifying required distributions, contributions, and enrollments. The bill impacts both people who are already retired (or close to it) and those who are a long way off from doing so.

Below is a list that outlines nine of the changes to retirement plans/vehicles that the Secure Act 2.0 makes:

1. Required Minimum Distributions (RMDs)

In 2019, the original Secure Act increased the age at which one must take distributions from retirement accounts to 72 years old. But, per Section 107 of the Secure Act 2.0, this age increased to 73 years in January 2023 and will rise even higher to 75 years on January 1, 2033. The purpose of this, according to the bill, is to “ensure that individuals spend their retirement savings during their lifetime” rather than simply pass it on to beneficiaries through their estate.

2. Catch Up Contributions

Currently, people aged 50 years or older may make catch-up contributions of $7,500 to an employer-sponsored retirement plan. Section 109 of the Secure Act 2.0 raises this limit to $10,000 on January 1, 2025 for those from ages 60 to 63. According to the bill, the following years will see increases “indexed for inflation.”

3. Employer Matching for Roth Accounts

Currently, employers aren’t able to match contributions to accounts such as 401(k), 403(b), or 457(b), unless it’s with pre-tax dollars. Section 604 of the Secure Act 2.0 changes these rules, allowing employers to match in a Roth capacity, meaning contributions may be made with after-tax dollars.

4. Qualified Charitable Distributions (QCDs)

Section 307 of the Secure Act 2.0 modifies regulations for qualified charitable distributions (QCDs). It enables people aged 70.5 years and older to make a “one-time $50,000 distribution” to qualified charities, such as gift annuities and charitable remainder unitrusts. And, in future years, the annual IRA charitable distribution limit of $100,000 “indexes for inflation.”

5. 401(k) Enrollment

The Secure Act 2.0 also makes it easier for every American to enroll in a 401(k), which can be crucial for retirement. Per the new rules in Section 101, which take effect in 2025, employers must automatically enroll their employees in a 401(k) or 403(b) plan once they become eligible. The beginning contribution rate is 3%.

6. Emergency Savings

Unfortunately, emergencies can strike at any time. However, unless you have an emergency fund in place, you may not have enough to deal with your circumstances financially. The Secure Act 2.0 allows you to connect an emergency savings account to your 401(k). You can contribute on a Roth basis (with after-tax dollars) until the account maxes out at $2,500.

7. Ability to Convert 529 Into a Roth IRA

It’s common for people to have leftover funds in their 529 plans, which they then plan to roll into a Roth IRA. However, before the Secure Act 2.0, this process incurs penalties and taxes. The new legislation eliminates these costs for rollovers up to $35,000, making it much easier to transfer funds. Keep in mind that the 529 plan you use for the rollover must be at least 15 years old.

8. Saver’s Match

Right now, those who make contributions to IRAs, employer-sponsored retirement plans (401(k), 403(b), etc.), and ABLE accounts are eligible for a nonrefundable credit that pays out in cash. However, Section 103 of the Secure Act 2.0 changes this to a 50% match of contributions up to $2,000 annually. To qualify, you must meet the following income requirements (as reported on your tax returns):

• $35,000 annually for single or married filing jointly
• $53,250 annually for head of household
• $71,000 for those filing jointly

Note: the changes above go into effect in the tax year following December 31, 2026.

9. Student Loan Debt

For many, student loan debt can cripple any possibility of contributing to retirement plans or accounts. Because of this, the Secure Act 2.0 is adding new policies that allow employers to match qualified student loan payments in the form of contributions to a 401(k), 403(b), or SIMPLE IRA. For a student loan payment to be qualified, it must be to pay off any debt that covers “high education expenses.” In the case of government employees, employers may match student loan payments by contributing to a 457(b) plan.

How the Secure Act Impacts Your Retirement

The Secure Act, and its follow-up, exist to make it easier for people to plan and save for retirement. Each of the changes above emphasizes making it simpler to contribute or protect one’s ability to do so. Without consistently contributing to a retirement plan or tax-advantaged savings account, one may not have a sufficient amount of money on hand to live comfortably.

More specifically, the Secure Act 2.0 refines contribution and matching policies to help those who may lack sufficient income save for retirement. For example, Saver’s Match ensures that the federal government matches contributions to IRAs for Americans in the low- to middle-income class range. Additionally, the legislation allows employers to match student loan payments that may otherwise prevent an employee from saving for their later years.

Frequently Asked Questions

How does the Secure Act 2.0 affect RMDs?

The Secure Act 2.0 raises the age at which one must make RMDs. In 2019, one had to withdraw funds from certain retirement accounts, such as a traditional IRA or 401(k), if they’re 72 years old. However, the new legislation raised this age to 73 years old in 2023 and 75 years old in 2033.

When does the Secure Act 2.0 take effect?

Not all changes that the Secure Act 2.0 makes take effect at the same time. Some changes, such as the RMD age limit increase, already took effect in 2023. Others, such as the catch-up contribution limit increase that starts in 2025, will take place in later years.

Does the Secure Act 2.0 affect student loans?

The Secure Act 2.0 allows employers to match any student loan payments employees make in the form of contributions to a retirement plan it offers, such as a 401(k) or 403(b).