Your complete guide to the SECURE 2.0 Act of 2022

SECURE Act 2.0 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.

Key provisions of SECURE 2.0

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

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.

Required minimum distributions

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.

Expand catch-up contributions

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, 2026, all catch-up contributions for participants earning more than $145,000 will have to be made on a Roth basis.

Long-term, part-time employee eligibility

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.

Saver's matching program

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.

Student loan matching contributions

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.

Table of Provisions PDF SECURE 2.0 Q&A PDF SECURE 2.0 Challenges PDF

What is the SECURE 2.0 Act of 2022?

The SECURE Act 2.0 is a rule that makes most companies enroll eligible employees for the company's retirement plan automatically. Starting in 2025, Section 101 requires that employers establishing a new 401(k) or 403(b) plan and enroll eligible employees automatically, with a contribution rate of at least 3%.

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What does the SECURE 2.0 Act do?

The 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:

  • Automatically enrolling eligible employees
  • Expanding catch-up contributions
  • Allowing participants to withdraw up to $1000 penalty-free for emergency expenses

What incentives does SECURE 2.0 offer small businesses?

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).

How have Roth contribution rules changed under the SECURE 2.0 Act of 2022?

The SECURE 2.0 Act impacts Roth contributions in several ways. Two important changes you need to be aware of are:

  • Effective January 1, 2026, all catch-up contributions to employer-sponsored qualified retirement plans for participants earning more than $145,000, will be made on a Roth basis.
  • Employers may permit employees to elect that employer matching and Non-Elective Contributions be treated as Roth contributions.

How does SECURE 2.0 better help employees save for retirement?

SECURE 2.0 helps employees save in a number of ways:

  • Increases the annual catch-up contribution amount for participants ages 60-63 to $10,000, beginning in 2025
  • Increases the age for required minimum distributions from 72 to 73 in 2023 and up to 75 in 2033
  • Expedites eligibility for long-term, part-time workers to participate in a plan after two years

When will provisions of the SECURE 2.0 Act take effect?

SECURE Act has over 90 provisions with various effective dates ranging from 2023 through 2027. Many provisions will become effective in 2024.

How does the SECURE 2.0 Act of 2022 impact RMDs?

SECURE 2.0 Act increases the age requirement for participants to begin taking a Required Minimum Distribution (RMD) from 72 to age 73 in 2023, increasing to age 75 in 2033.

What does SECURE 2.0 have to do with social security?

SECURE 2.0 Act does not address social security reform within any of its provisions. It is designed to make retirement plans more accessible to Americans and includes provisions to encourage them to save more.

How does the SECURE Act 2.0 affect 401k?

SECURE 2.0 Act is broad legislation designed to help Americans save for their future through provisions that aim to expand access to retirement plans, increase savings opportunities for employees and streamline administration of employer-sponsored retirement plans, including 401k plans.

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