Last Updated: December 23, 2024

For those not ready to retire yet, Secure Act 2.0 adds a few ways for those still saving for retirement to enhance their nest eggs.

Increases for catch-up contribution limits¹

If you’re 50-59 in 2025, you can currently contribute an additional $7,500 to your 401(k). If you’re 60-63, you can contribute an additional $11,250 instead.That’s on top of the $23,500 annual federal limit in effect this year. Additionally, you can make a catch-up contribution of $1,000 to an IRA.  

Here are some of the updates Secure Act 2.0 will provide for your ability to make catch-up contributions:

• 401(k) and 403(b) plans: Starting in 2025, the catch-up contribution will become the greater of $10,000 or 50% more than the catch-up limit for individuals aged 60 to 63. Starting in 2026, the catch-up will be indexed to inflation.
• IRAs: As of 2024, the catch-up contribution will be indexed to inflation. The index will start at the current catch-up amount of $1,000.
• Tax treatment of catch-up contributions: Starting in 2026, catch-up contributions made by participants earning over $145,000 must be designated as after-tax Roth contributions. For individuals already age 50 and older, you can continue to make catch-up contributions regardless of income.

The focus on indexing catch-up contributions and thresholds to inflation provides a way for contributions to increase without Congress needing to revisit the law each time.

Expanded automatic enrollment²

Beginning in 2025, Secure Act 2.0 requires employers to enroll all newly eligible employees in a retirement plan automatically. This mostly applies to employer-sponsored plans like 401(k)s and 403(b)s. These rules apply to employers that start plans after Dec. 29, 2022. 

The automatic enrollment must be at the 3% level. However, it can be higher if it doesn’t exceed 10% of income. Employees can choose to opt-out, but this provides a way to automatically save more for retirement without jumping through opt-in paperwork. 

Secure Act 2.0 will also require automatic escalation for plans employers start after Dec. 29, 2022. Each year, the contribution percentage must go up by 1% until the contribution reaches at least 10%. The limit is 15% of eligible wages. 

For many pre-retirees, this provision offers a way to automatically save more each year without the need to change a retirement account withholding with the human resources department.

It’s important to note that these two provisions are only for plans established after the required dates. Existing workplace retirement plans won’t have to establish automatic enrollment or escalation. So, if you’re still working and saving up for retirement, make sure you confirm automatic enrollment or escalation if you change jobs.

Access to retirement funds for emergencies³

Secure Act 2.0 lets employees withdraw up to $1,000 from their retirement account for emergency expenses without paying the typical 10% tax penalty for early withdrawal if they are under age 59½. It’s important to note that you can only take this withdrawal once per year. 

Another important item to understand is that if you don’t repay the $1,000 withdrawal within a certain time period, you can’t take another emergency distribution for another three years. This provision can help you in a pinch, allowing you to access your retirement account early without worrying about how the taxes might impact you.

Additionally, companies can allow workers to set up an emergency savings account through automatic payroll deductions, with a cap of $2,500. These emergency savings accounts are also allowed to use automatic enrollment. As with automatic enrollment with retirement plans, it’s possible for workers to opt-out if they wish.

Increasing part-time workers’ access to retirement accounts⁴ 

For years, companies have been required to grant retirement contribution eligibility to employees who work at least 1,000 hours in a year. In order to expand access to part-time employees, the original Secure Act allowed part-time workers with between 500 and 999 hours for three consecutive years to be eligible for their company’s 401(k) or other plans. 

Secure 2.0 makes it easier for part-time workers to access retirement plans by reducing the timeframe to two years. For retirees who transition to part-time work, this offers you an opportunity to continue saving during the transition period and boost your nest egg before withdrawing from retirement accounts.

Increase to how much can be invested in a qualified longevity annuity contract⁵

A qualified longevity annuity contract (QLAC) is a special type of annuity that begins paying out when you reach an especially advanced age. In essence, this is longevity insurance — for those who think they’ll live beyond age 85, a QLAC allows you to receive annuity payments once you’ve passed this age.

Currently, the maximum that can go into a QLAC is either $135,000 or 25% of the value of your retirement accounts, whichever is less. Secure 2.0 eliminates the 25% cap and increases the maximum amount allowed in a QLAC to $200,000.

For Americans concerned about longevity risk and outliving savings, the Secure Act 2.0 expands access to qualified longevity contracts.  

Replace the Saver’s Credit⁶

Today, the Saver’s Credit reduces taxes for those in certain income brackets. It’s a tax credit designed to encourage more saving. The current limit is $1,000 for individuals and $2,000 for joint filers. The credit comes when you file your tax return. However, the credit is nonrefundable. This means the credit can only take your tax bill down to $0, but if you have excess, you won’t receive it in the form of a refund.

However, starting in 2027, the Saver’s Credit will be replaced with a Saver’s Match. The federal government will make a matching contribution to your IRA or retirement plan. The match will be 50% of the IRA or employer-sponsored plan contributions, capped at $2,000 per person. 

SOURCES

1. Secure Act 2.0, U.S.C., H. R. 2617—832 (2022). https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf. Accessed 23 December 2024.
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.