Secure Act 2.0: What Your 401(k) Needs to Know

Secure Act 2.0: What Your 401(k) Needs to Know

There are some significant, I’ll call them, enhancements to your 401(k) coming next year.  You can thank Mr. Secure Act 2.0 for these adjustments.  Thought I’d get this out there now so you can hit the ground running come 2025, as you know the old saying those that fail to plan, plan to fail. 

Below you will find provisions that should go into effect come 2025:

1. Super Catch-Up – If you are 60, 61, 62, or 63 at the start of the calendar year, you’ll be eligible to contribute either greater of $10,000 or 150% of the regular, age 50, catch-up limit. 
2. Roth Catch-Up Contributions– Starting in 2026, so you have an extra year, all catch-up contributions for employees earning more than $145,000 (indexed for inflation) the previous year must be contributed to a Roth 401(k).
3. Automatic 401(k) enrollment– Moving forward in 2025 all employees, once eligible, will have a mandatory 3% employee deferral in their 401(k).  You can opt-out at any time, but you don’t have to opt in. 
4. 401(k) employer contributions– Starting in 2025 employees can opt to have their employer match portion go towards Roth 401(k) where previously it had to go toward traditional or pre-tax 401(k).  Do note that if choosing the Roth option for match you will be taxed on those contributions now.
5. Required Minimum Distributions (RMD)- The new age for RMD’s is 73 and will increase to 75 in the year 2033.  Thus, if you reach that age in 2033 you have 2 extra years until you are forced to take money out of your retirement plans.
6. 529 to Roth– Now I know this one doesn’t fall under the 401(k) title, but I thought it was worth mentioning especially since it does translate to another retirement plan benefit.  As of 2024, you can convert up to $35,000 of unused 529 dollars into a Roth IRA for the beneficiary.  A few requirements are worth noting.  For starters, the account must be opened for at minimum 15 years, this prevents someone “cheating the system” by opening a 529 just to take advantage of this benefit.  Next, you can only convert the amount that is allowed to be contributed in that calendar year.  Thus, if next year’s Roth IRA contribution limit is $7,000 you can only do that much a year until you hit the $35,000 threshold.  Additionally, you can’t contribute twice in the same year meaning if you do this conversion for your child, they can’t contribute additionally to their own Roth IRA (401(k)’s excluded). 

Cha Cha Cha Changes

I always loved that David Bowie song and feels appropriate in preparing for next year’s sweeping changes.  It is probably the most changes I’ve seen to retirement savings in a year for as long as I’ve been doing this.  Honestly, most of these changes are beneficial, encourage retirement savings, and give optionality.  I think the powers to be got it right with the above adjustments, now it is time for you to determine how this affects you. 

Hope you enjoyed this information and wish you all a happy, healthy, and wealthy day.