SECURE 2.0 Act aims to help employees save for retirement

Posted December 30, 2022

The federal spending bill signed by President Joe Biden on December 29 includes updates to rules about retirement savings in what is being called the SECURE 2.0 Act.

These updates include provisions:

• Requiring automatic 401(k) enrollment at a rate of least 3 percent but not more than 10 percent. It would then be up to employees to opt out if they wish. (This provision does not apply to employers with 10 or few employees or new companies in business for less than three years).
• Increasing the "catch-up" contribution limit for older individuals, increasing the limit to $10,000 starting in 2025 for savers ages 60 to 63.
• Allowing for tax-free and penalty-free rollovers to Roth IRAs from 529 college savings accounts under certain conditions.
• Making it easier for employers to contribute to 401(k) plans on behalf of employees who opt to pay off student loans instead of saving for retirement.
• Helping employees building and accessing emergency savings plans allow employees to withdraw up to $1,000 from their retirement accounts for emergency expenses without having to pay the typical 10 percent tax penalty for early withdrawal if they are under age 59 ½. Companies also could let workers set up an emergency savings account through automatic payroll deductions, with a cap of $2,500.

Builds on original SECURE Act

Secure 2.0 builds on the original SECURE (Setting Every Community Up for Retirement Enhancement) Act, signed into law in December 2019. That law raised the age at which people were required to start withdrawing money from retirement accounts to 72, from 70 ½. The new legislation raises that age again—to 73 beginning January 1, 2023, and to 75 starting on January 1, 2033. The provisions also incentivize small businesses to set up retirement savings plans for their workers.

In addition, part-time workers are impacted by the Act. Previously, part-time workers could participate in a workplace retirement plan if they had three years of service and worked at least 500 hours per year. Under Secure 2.0, that service time has been reduced to two years.

This article was written by Judy Kneiszel of J. J. Keller & Associates, Inc.