Here are the Top Three SECURE 2.0 Act starting 2025

The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act became law at the end of 2022. With a pending US retirement crisis, US Congress is attempting to update regulations around retirement accounts to help more people prepare. The goal is to help you increase your savings.

If you are over the age of 40, you will need more than $2.5 million for retirement. This number is based on eighty percent of the 2023 median annual expense, adjusted for inflation at 2.5 percent, and multiplied by 25. This number also varies based on higher cost of living areas which have less access to farms and water sources. Per Bankrate.com as of December 2023, the average social security check paid out less than $1,800 monthly. Based on the same inflation rate, hopefully, this is a payout of $36,000 annually to offset the income need by 2044.

In total, Americans should estimate spending as much as $100,000 annually. As such, if you stumble on this post, you need to buckle up for this class. Among the many changes it makes to retirement policy, the SECURE 2.0 law pushes back the required minimum distribution (RMD) age for individual retirement accounts (IRAs) and increases catch-up contribution limits.

Here are the top SECURE 2.0 Act changes that will affect your retirement:

Table of Contents

1. Automatic Enrollment into your Company’s 401k or 403b plan

If your employer offers a retirement plan, starting after Dec. 31, 2024, employers will automatically enroll eligible employees into a retirement savings plan. The initial contribution must be at least 3% of pretax earnings but not more than 10%.

Employees will have to opt out if they don’t want to participate in their company’s retirement plan. The benefit here is that most people who opt into saving for themselves early, typically don’t opt out. Expect an adjustment on your take-home pay if you have started investing in a 401k or 403b.

Try to remember this as a net positive way to keep more of your money active and engaged in recruiting more dollars. Retirement costs are climbing. It’s best to stay ahead of the curse.

2. Increased Catch-Up Contributions if Over 50

The Secure Act 2.0 added one more 401k or 403b update for those over 50. The catch-up contribution limits for retirement plans such as 401ks will increase to +$10,000 on top of the heavy maximum contribution of $23,000 (2024).

Let’s say you started at the age of 50 with zero contributions and started to work toward the full retirement age of 67. Investing $2,750 per month at the historical average return of 8% for 17 years would yield $1.154 million in retirement savings. That’s a great starting point to add to more than $30,000 in annual social security benefits.

Every bit helps.

3. Required Minimum Distributions (RMD) Changes

According to the SECURE 2.0 Act updates, RMD rules and penalties changed. For people who turn 72 in or after 2023, the age for required distributions has been raised to 73. The next significant change will hit in 2033 when the age limit will shift to 75.

Better yet, the associated penalty for NOT taking your RMDs will decrease to 25% from 50% starting in 2023. If corrected in time, the penalty will drop to 10%. Starting in 2024, required distributions will be eliminated from non-IRA Roth accounts, including Roth 401k plans. The goal is to help people grow their assets longer with enough time to adjust their withdrawals.

Think of these changes as opportunities to build wealth and retire with dignity. The goal is to avoid falling behind in your 40s. Make every year count.

Noted Limitations and Criticisms of the SECURE Act 2.0

Changes always come with a bit of adjustment and even some criticisms. This includes more tax benefits to higher earners, adjustments to current pre-tax contributions, and employer cost increases. Specifically:

Some noted that the SECURE Act disproportionately impacts those with substantial retirement savings and high earners. It offers less for the median household learning under $80,000 per year.
Some stated that the act doesn’t address the lack of access to retirement savings plans. With more Americans making hardship withdrawals since the Pandemic, this is becoming a massive issue in the US.
Finally, the act adds complexity and costs to plan sponsors who typically pass the increase to employers and employees.