The SECURE Act 2.0, passed in 2022, brings several changes to retirement savings plans. Some of these changes will take effect in 2025, providing opportunities for Americans to boost their retirement savings. One key change is the increase in catch-up contributions for 401(k) plans.
Starting in 2025, workers aged 60 to 63 can contribute an additional $10,000 or 150 percent of the 2024 catch-up contribution limit, whichever is greater. This means these workers can contribute at least $34,250 to their 401(k) plans in 2025, not including employer-matching contributions. Another change affects new 401(k) plans established after December 29, 2022.
These plans will be required to automatically enroll employees at 3 percent of their salary, with the default contribution rate increasing by 1 percent each year until it reaches a minimum of 10 percent but no more than 15 percent of compensation.
Retirement plan changes under SECURE 2.0
This change aims to increase participation rates among younger employees.
SECURE 2.0 also introduces automatic portability, allowing plan providers to offer employees the option to roll over their retirement accounts to their new employer’s plan when changing jobs. This helps employees avoid cashing out their retirement savings and provides a more seamless management of their funds. Starting in 2025, penalties for failing to take required minimum distributions (RMDs) from inherited IRAs will be assessed.
Non-spouse beneficiaries are required to fully deplete the account by December 31 of the tenth year following the death of the original IRA holder. A 25 percent penalty will be assessed on any undistributed amounts if beneficiaries fail to meet their RMD requirement, although this penalty can be reduced or waived if corrected timely. These changes under the SECURE Act 2.0 aim to make retirement savings more accessible and manageable for Americans.
Individuals must review their retirement plans and consult with financial advisors to understand how these changes can best serve their retirement goals.
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