Upcoming Changes from SECURE Act 2.0 in 2025: What You Need to Know
The SECURE Act 2.0, building on the original SECURE Act of 2019, is set to bring significant changes to the retirement landscape starting in 2025. These new provisions aim to enhance retirement security for Americans by increasing access to savings plans, encouraging greater savings, and providing more flexibility in retirement planning1.
Automatic Enrollment and Escalation. One of the most notable changes is the introduction of mandatory automatic enrollment for new 401(k) and 403(b) plans. Starting in 2025, employers will be required to automatically enroll eligible employees at a contribution rate of at least 3% of their salary. This rate will automatically increase by 1% each year until it reaches at least 10%, but no more than 15%. This change is designed to help more employees start saving for retirement early, even if they haven’t taken the initiative to enroll themselves1.
Enhanced Catch-Up Contributions. For those nearing retirement, catch-up contributions will become even more valuable. Individuals aged 60 to 63 will see their catch-up contribution limits increased to the greater of $10,000 or 150% of the regular catch-up amount in 2024. However, there’s a new twist for high earners—those making $145,000 or more will be required to make these contributions to a Roth (after-tax) account. This change encourages more after-tax savings, which can be beneficial for tax planning in retirement1.
Student Loan Matching. The SECURE Act 2.0 recognizes the burden of student loan debt and its impact on retirement savings. Starting in 2025, employers will have the option to match student loan payments with contributions to an employee’s retirement plan. This means that even if an employee can’t afford to contribute to their retirement account because of student loan obligations, they won’t miss out on employer matching contributions. This provision could be a game-changer for younger workers struggling to balance debt repayment and saving for the future1.
Emergency Savings Accounts. In response to the need for accessible emergency funds, the SECURE Act 2.0 allows employers to offer pension-linked emergency savings accounts. Employees can contribute to these accounts on a post-tax basis, with a contribution limit of $2,500. Withdrawals can be made at any time without penalties, providing a crucial safety net for unexpected expenses. This initiative encourages saving while still maintaining the flexibility to handle financial emergencies1.
Penalty-Free Emergency Withdrawals. Starting in 2025, individuals will be able to withdraw up to $1,000 from their retirement accounts for emergency expenses without facing the usual 10% early withdrawal penalty. This option can be used once per year, but if the withdrawal isn’t repaid within three years, no additional emergency withdrawals can be made. This change provides a balanced approach to accessing retirement savings in times of need while still encouraging long-term saving1.
Roth Matching Contributions. Roth accounts, which allow for tax-free growth and withdrawals in retirement, are becoming more prominent in the SECURE Act 2.0. Beginning in 2025, employers will have the option to offer Roth treatment of matching contributions. This means that employees can choose to have their employer’s matching contributions made on an after-tax basis, allowing for tax-free growth. This option provides greater flexibility in retirement planning and can be particularly advantageous for those expecting to be in a higher tax bracket in the future1.
The changes brought by SECURE Act 2.0 in 2025 are designed to improve retirement security, increase savings opportunities, and provide more flexibility for dealing with financial challenges. Whether you’re just starting your career or nearing retirement, it’s essential to understand these new provisions and how they might impact your retirement planning strategy.
Consider consulting with a financial advisor at Creason-Edwards & Cimarolli to discuss these changes and adjust your retirement plans accordingly. With the right approach, you can make the most of the opportunities presented by SECURE Act 2.0 and work to build a more secure financial future.
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[1] irs.gov
