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A collection of provisions designed to overhaul the U.S. retirement system and help Americans save more could soon become law.
Included in the sweeping, end-of-year spending package that Congress is expected to vote on in the coming days are a series of measures that are part of the long-delayed "Secure 2.0 Act." Lawmakers have until Friday to pass the $1.7 trillion omnibus spending package in order to keep the government funded, or to approve a continuing resolution to push the deadline into next year.
Secure 2.0 – a follow-up to the 2019 Secure Act – is designed to bolster Americans' retirement savings by making a number of key changes to existing retirement account rules and certain related tax breaks.
"Including Secure 2.0 retirement provisions in the last major legislation of the year means that Congress is poised to help millions more workers and retirees with significant improvements to the nation’s private retirement system," Paul Richman, the chief government and political affairs officer at the Insured Retirement Institute, said in a statement.
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People walk outside the U.S Capitol building in Washington, June 9, 2022. (AP Photo/Patrick Semansky, File / AP Newsroom)
Here are some of the ways that Secure 2.0 would overhaul the current retirement system:
Automatic 401(k) enrollment
Beginning in 2025, employers that offer 401(k) or 403(b) savings plans would be required to automatically enroll employees at a rate of at least 3%, with mandatory 1% increases each year to a maximum rate of 10%. Employees could choose to opt out of the plan.
Small businesses with 10 or fewer workers and new businesses in existence for fewer than three years would be exempt from the rule.
President Biden speaks to African leaders gathered for the U.S.-Africa Leaders Summit Wednesday, Dec. 14, 2022, in Washington. ((AP Photo/Patrick Semansky) / AP Newsroom)
Creating bigger "catch up" contributions for older savers
Under current law, Americans who are 50 or older can make so-called catch-up contributions of no more than $6,500 per year to their 401(k) and 403(b) plans, with a limit of $27,000.
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But Secure 2.0 would increase the annual catch-up by 50% to $10,000, indexed annually for inflation, for participants between the ages of 60 and 63 starting in 2025.
On top of that, all catch-up contributions would be subject to Roth rules – meaning individuals pay taxes on the money upfront.
Increased age for RMDs
The bill would raise the age that Americans must take a required minimum distribution from their retirement plan to 73 beginning in 2023, up from the current age of 72.
In 10 years, the RMD age would once again move up to 75.
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Emergency expense distributions
Beginning in 2024, Americans would be allowed to take an early "emergency" distribution from their retirement accounts to cover unexpected or immediate financial needs. Individuals could take out as much as $1,000. The money could be taken once a year and would not be subject to the usual 10% tax that applies to early distributions.
However, there is a catch: Anyone who takes the emergency expense option but does not pay it back within a certain time frame will not be allowed to tap the retirement fund penalty free for another three years.
Expanding employer 401(k) match options
Another aspect of Secure 2.0 would make it easier for employers to make contributions to 401(k) plans on behalf of employees paying off student loan debt. Employers could essentially make a matching contribution to your retirement account based on your student loan payment amount – a rule intended to remove student loan debt as a major obstacle to retirement savings.
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Incentives for retirement plan contributions
Secure 2.0 would allow employers to offer small financial incentives to employees to encourage them to participate in any offered retirement plans.
FAQs
SECURE Act 2.0 RMD changes
SECURE 2.0 increased the required minimum distribution age to 73 as of January 1, 2023. However, if you turned 72 in 2022, you had to take your first RMD by April 1, 2023. The bump to age 73 is one of several new RMD rules. However, the RMD age eventually moves to 75.
What is in the 1.7 trillion dollar spending bill? ›
The sweeping package includes roughly $45 billion in emergency assistance to Ukraine and NATO allies, an overhaul of the electoral vote-counting law, protections for pregnant workers, an enhancement to retirement savings rules and a TikTok ban on federal devices.
What are the changes in the SECURE Act 2.0 retirement plan? ›
SECURE 2.0 makes numerous changes to the Required Minimum Distribution (RMD) rules. The changes include: Section 107 increases the RMD starting age from 72 to 73 (effective January 1, 2023) and then again to 75 (effective January 1, 2033). Section 302 reduces the penalty for failing to take a RMD from 50 to 25 percent.
What is the new 401k law? ›
The SECURE Act 2.0 requires most companies to enroll eligible employees into the company's retirement plan automatically. Beginning in 2025 Section 101 states that employers starting a new 401(k) or 403(b) plan must automatically enroll eligible employees at a contribution rate of at least 3%.
What are the new retirement rules for 2024? ›
Highlights of changes for 2024. The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500. The limit on annual contributions to an IRA increased to $7,000, up from $6,500.
What is the Biden retirement rule? ›
“This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest. Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions.”
What is the new Congress spending bill? ›
WASHINGTON, March 23 (Reuters) - President Joe Biden on Saturday signed into law a $1.2 trillion spending package, keeping the U.S. government funded through a fiscal year that began six months ago.
What is in the new government spending bill? ›
Congress released a massive $1.2 trillion bill on Thursday to fund the rest of the federal government. The package, which runs more than 1,000 pages, would provide funding for the departments of Defense, Homeland Security, Labor, Health and Human Services, Education, State and the legislative branch.
Did the Senate pass the spending bill? ›
Washington, D.C. – Today, the Senate voted 72-24 to send the final set of bicameral, bipartisan fiscal year 2024 appropriations bills to the President's desk to be signed into law.
What is the new law affecting retirement accounts? ›
What is the Secure 2.0 Act? The Secure 2.0 Act is a federal measure passed in late 2022 to encourage Americans to save for retirement. Among the many changes it makes to retirement policy, the new law pushes back the required minimum distribution age for individual retirement accounts, or IRAs.
The SECURE Act 2.0 changes the age for when savers must begin taking required minimum distributions (RMDs) from retirement plans, not once but twice. The age to start taking RMDs has now become 73, as of 2023, up from age 72. Then starting on Jan. 1, 2033, the age for beginning to take RMDs jumps to 75.
What are the 401k changes for 2025? ›
The legislation requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, starting in 2025.
Can the government take my 401k? ›
The Feds Can Tap Your 401(k) Funds for Taxes
Though a less common reason than overdue taxes, the federal government can also potentially seize or garnish your 401(k) if you have committed a federal crime and are ordered to pay fines or penalties.
Is the new retirement no retirement? ›
The new retirement is no retirement: Baby boomers are keeping jobs well into their sixties and seventies because they 'like going to work' At 73, George Cavedon could be spending his days on a golf course in Florida with friends who have long been retired.
What is the 15 year rule 401k? ›
Under the special 403(b) catch-up, employees of a qualified organization may contribute an increased dollar amount under IRC Section 402(g)(1) if they've completed at least 15 years of service with the organization.
What are the changes in the omnibus spending bill for retirement plans? ›
Effective in 2025, for employees ages 60-63, the limit on catch-up contributions to qualified retirement plans (401(k), 403(b), and governmental 457(b) plans) will be increased from $7,500 to the greater of i) $10,000 or ii) 150% of the regular catch-up amount for 2024.
What are the hardship withdrawal rules for 2024? ›
Top SECURE Act 2.0 changes in 2024
Under the SECURE Act 2.0, employers can give you permission to take an annual distribution of up to $1,000 to cover a personal emergency with immediate need. However, you must repay the amount before you can take any further emergency distributions for future years.
What are the changes in Secure 2.0 2024? ›
Starting in 2024, employers are able to make matching contributions for qualified student loan payments to 401(k), 403(b), or SIMPLE IRA plans. This will allow student loan borrowers to build their retirement savings while also paying down their student debt — without having to sacrifice one or the other.
