The SECURE 2.0 Act is here, and this law adds over 90 new provisions to help Americans save through employer-sponsored plans. ADP is here to help you learn about the ins and outs of SECURE 2.0 and how businesses can take advantage of increased tax incentives.
From expanding coverage to simplifying plan rules, SECURE 2.0 aims to make it more attractive for employers to offer retirement plans and improve retirement outcomes for employees.
Here are just a few key provisions employers need to understand about the new law.
Automatic enrollment requirement
Required minimum distributions (RMDs)
Catch-up contributions
Long-term, part-time employees
Saver's match
Student loan matching
Most companies will now be required to automatically enroll eligible employees into their retirement plan, helping more Americans reach retirement readiness.
Employers who start new retirement plans will be required to automatically enroll employees at a rate of at least 3% but not more than 10%, beginning in 2025. New companies in business for less than three years and businesses with 10 or fewer workers are excluded from this requirement.
The age requirement to begin taking RMDs will increase from age 72 to 73 in 2023 and then age 75 in 2033. The penalty for not taking an RMD is now reduced from 50% to 25%, and in some cases to 10%. Beginning in 2024, the RMD requirement for Roth 401(k) accounts during a participant's lifetime will be eliminated.
Extending the RMD start date gives participants more time to grow their retirement plans. Employees should evaluate their retirement readiness and determine how long they may need to work and when they expect to begin withdrawing from their retirement savings.
As employees begin to move closer to retirement age, they can contribute more to their retirement savings. Currently, participants aged 50 and older can contribute an extra $7,500 annually to their 401(k) account. This amount will increase to $10,000 per year starting in 2025 for participants ages 60 to 63.
Catch-up provisions will be indexed for inflation. Lastly, effective January 1, 2024, all catch-up contributions for participants earning more than $145,000 will have to be made on a Roth basis.
Long-term, part-time employees will now become eligible sooner under the SECURE 2.0 Act, enabling them to begin saving for their future earlier and putting them in a better position to achieve their retirement goals.
The original SECURE Act required that long-term, part-employees (those who worked between 500 and 999 hours for three consecutive years) be eligible to participate in their company's retirement plan. Under the new law, that requirement will be reduced to two years starting in 2025.
Beginning in 2027, low to middle-income employees (those earning up to $71,000 per year) will be eligible for a federal matching contribution of up to $2,000 per year that must be deposited into their retirement savings account. The match phases out based on income and tax-filing status and replaces the current Saver's Credit.
Beginning in 2024, student loan payments could count as retirement contributions for the purpose of qualifying for matching contributions in a workplace retirement account. Employers will also be able to make contributions to their company retirement plan on behalf of employees paying student loans instead of saving for retirement.
The matching contributions for student loan payments must vest under the same schedule as other matching contributions. Additionally, employees must be eligible for a match in order to receive the student loan matching contribution.
In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) to help individuals better prepare for retirement. On December 29, 2022, the SECURE 2.0 Act was signed into law to address additional issues related to retirement and savings, creating new flexibility and accessibility to help individuals plan for a more secure future.
Learn about the key provisions that are part of the SECURE 2.0 Act, how they impact employers and employees, and which provisions are mandatory and which are optional.
SECURE 2.0 Overview
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SECURE 2.0 creates new retirement saving incentives for employers and employeesThe SECURE 2.0 Act is designed to encourage more employers to offer retirement plan benefits and more employees to participate in saving for their future. The law does so by updating and adding new retirement account provisions, including:
If your small business doesn't currently offer retirement benefits, you could be missing out on major incentives. Many provisions include tax credits to offset the administrative costs of setting up and maintaining retirement plans. For example, small businesses with up to 50 employees can receive tax credits for up to 100% of plan start up and administrative costs for the first three years,* as well as up to $1,000 per employee earning $100,000 or less in additional annual tax credit for employer contributions to defined contribution plans.
* Up to the greater of $500 or $250 times the number of eligible non-highly compensated employees up to $5,000 (minimum $500).
The SECURE 2.0 Act impacts Roth contributions in several ways. Two important changes you need to be aware of are:
SECURE 2.0 helps employees save in a number of ways:
