As we approach January 1, 2025, key provisions of the SECURE 2.0 Act will take effect, shaping the future of retirement planning for individuals and businesses alike. Building on the original SECURE Act of 2019, SECURE 2.0 is designed to expand access to retirement savings, enhance flexibility for savers, and encourage financial readiness for retirement.
These changes bring both opportunities and challenges. In this post, we’ll explore the most significant updates taking effect in 2025 and break down what they mean for you. From changes in required minimum distributions (RMDs) to expanded auto-enrollment provisions and new catch-up contribution rules, here’s what you need to know to stay ahead.
Expanding Automatic Enrollment
Automatic enrollment becomes a requirement for new 401(k) and 403(b) plans established on or after December 29, 2022 (with certain exceptions).
Such a feature must be in the form of an eligible automatic enrollment arrangement (EACA).
Under the EACA, participants must be automatically enrolled at an initial rate of at least 3% (but not more than 10%) and increased each year by 1% to at least 10% (but not more than 15%).
Contributions must be invested in a qualified default investment alternative (QDIA).
Participants may elect to opt out of the EACA and/or request a refund of contributions made under the EACA, subject to the 90-day withdrawal rule.
Higher Catch-Up Limits
Higher catch-up limits will apply to individuals aged 60, 61, 62, and 63.
Under current law, employees aged 50+ can make catch-up contributions beyond the standard limits.
The limit for catch-up contributions in 2025 is $7,500. However, Section 109 raises this limit to $11,250 for individuals aged 60-63 during 2025.
Section 109 is effective for taxable years beginning after December 31, 2024.
Catch-Up Contributions Must Be Roth for Certain Higher-Paid Employees
Certain higher-paid employees must make catch-up contributions on a Roth basis.
Applies to participants with wages exceeding $145,000 in the prior calendar year (indexed for inflation).
Other participants may elect (but are not required) to make Roth catch-up contributions.
Originally intended for 2024, the IRS announced a two-year transition period, making this effective January 1, 2026.
Employers may want to implement Roth provisions before 2026 to ensure smooth transitions, participant communication, and plan amendments.
Increase in Age for RMDs from 72 to 73
The required minimum distribution (RMD) age has increased:
70 ½: If born before July 1, 1949.
72: If born between July 1, 1949, and December 31, 1950.
73: If born between January 1, 1951, and December 31, 1959.
75: If born in 1960 or later.
Plan sponsors are not required to take action since all qualified plans must reflect these changes automatically.
Long-Term, Part-Time (LTPT) Employees
Starting January 1, 2025, SECURE 2.0 modifies rules for LTPT employees:
Previously, LTPT employees had to complete three consecutive years with at least 500 hours worked to participate in 401(k) plans. Now, this is reduced to two consecutive years.
This change also applies to ERISA-covered 403(b) plans.
LTPT employees must be allowed to make salary deferrals, though employer contributions are optional.
Increase in Cash-Out Limit
The cash-out limit for small account balances increases from $5,000 to $7,000, effective for distributions made on or after January 1, 2024.
Repayment of Qualified Birth or Adoption Distribution (QBAD)
The repayment window for QBADs is now limited to three years.
Previously, there was no specific repayment timeframe.
Participants must repay QBADs made before SECURE 2.0 by December 31, 2025.
Exclusion of Roth from Participant RMDs
Starting in 2024, Roth balances are excluded from RMD calculations and payments during the participant’s lifetime (but not for beneficiaries).
Midyear Replacement of SIMPLE IRAs with Safe Harbor 401(k) Plans
Employers may now replace SIMPLE IRAs with safe harbor 401(k) plans midyear.
Previously, SIMPLE IRAs could only be terminated at year-end.
Contribution limits for the remainder of the year must be prorated and outlined in the safe harbor notice.
Rollovers to the new 401(k) plan are exempt from the two-year SIMPLE IRA participation rule but remain subject to 401(k) withdrawal restrictions.
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