Secure 2.0 Act: Changing the way you save for retirement

By 2050, the U.S. is projected to face a $137 trillion retirement income gap (the difference between what savers should have and what they’ve actually saved). If these projections hold, retirees in six major economies, including the U.S., would outlive their savings by an average of eight to 20 years.¹

This lack of retirement preparedness has drawn Washington D.C.’s attention, leading to the SECURE 2.0 Act. The provisions, which will be phased in over the next few years, aim to address this income gap. Here’s a rundown of these provisions, their effective dates, and how they could affect your retirement planning.

What is the SECURE 2.0 Act?

Signed into law in 2022, the SECURE 2.0 Act builds on the original SECURE Act of 2019 by delivering dozens of new retirement rules. The legislation offers comprehensive changes to address the retirement income gap, altering the rules around how you can save for and withdraw money from your retirement accounts.

With so many changes, very few people will be unaffected. Understanding what SECURE 2.0 means for you could empower you to reach your savings goals and provide more flexibility when you retire.

Catch-up contributions

Catch-up contributions allow people age 50 and older to set aside additional dollars beyond the standard maximum contributions to employer-sponsored retirement plans.

Starting in 2025, the maximum catch-up contribution for 401(k)s and SIMPLE IRAs will increase for individuals who are between the ages of 60 and 63, indexed annually for inflation.

Starting in 2026, catch-up contributions to 401(k) plans for employees aged 50 or over who earned more than $145,000 in FICA wages must be made on an after-tax basis to a Roth account. Those earning $145,000 or less can continue making catch-up contributions on either a pre-tax or Roth basis., depending on their plan options. This amount will be adjusted for inflation going forward. If your retirement plan does not offer a Roth option, you will not be able to make catch-up contributions. Check with your plan administrator for details on your plan options and eligibility.

Required minimum distributions (RMDs)

The SECURE 2.0 RMD rules raise the starting age for required minimum distributions (RMDs) from traditional IRAs and employer sponsored retirement plans from 72 to 73. In 2033, the starting age will increase from 73 to 75.

You can choose to delay taking your first RMD until April 1 of the year after the year in which you turn 73. From that point on, you must take your RMDs each year by December 31. The penalty for failing to take RMDs on a timely basis has been lowered from 50% to 25%.

Delaying RMDs means the amount of withdrawals required in later years may be larger, which could move you into a higher tax bracket. And since your RMD amount is calculated by dividing your account balance on December 31 of the prior year by your life expectancy, a year with strong market performance may also move you into a higher tax bracket.

You can minimize the tax impact of this provision in a couple of ways:

• Donating an RMD, in any amount up to $111,000 in 2026, from a traditional IRA directly to a qualified charitable organization. This is known as a qualified charitable distribution (QCD) and it’s available to individuals 70 ½ years of age or older. QCDs are often an overlooked planning opportunity for individuals to manage gifts and reduce taxes.
• Building a tax-diversified portfolio that includes taxable (traditional brokerage accounts) and tax-free (Roth) accounts, which are exempt from RMDs.

Roth 401(k) plans

If you have a Roth 401(k) plan through your employer, and if the employer plan is updated to allow it, you can choose to have your employer’s matching contributions directed to your Roth 401(k) account. These contributions are considered taxable income in the year of the contribution, but future growth or withdrawals are tax free.

In addition, employers can now elect to add after-tax Roth contributions to accounts for SIMPLE IRA and SEP IRA retirement plans. Roth 401(k)s are no longer subject to RMDs.

401(k) plan participation

Under the new 401(k) rules for 2025, new employees will be automatically enrolled in 401(k) plans as soon as they become eligible. Also, existing employees will be automatically enrolled if they’re not participating in a plan. Employees who don’t wish to participate in the plan will have to choose to opt out.

Auto enrollment will be required of most major employers. Businesses with 10 or fewer workers and those in operation for less than three years will be excluded from the mandate.

The amount automatically deferred each year will range from 3% to 10% of each employee’s pretax earnings. After the first year, this will increase by 1% annually until it reaches 10% to 15% of pretax earnings.

Also starting in 2025, part-time employees will qualify to participate in a retirement plan once they’ve worked at least 500 hours for two consecutive years, reduced from the previous three-year requirement.

Inherited retirement accounts

The 2019 SECURE Act mandated the full withdrawal of inherited IRAs and 401(k)s within 10 years of the account holder’s death for most non-spouse beneficiaries. Final regulations issued in 2024 confirm that RMDs must be taken each year during the 10-year period.

Due to ambiguity in the law, the IRS won't assess penalties on non-spouse beneficiaries who didn't take RMDs between 2021 and 2024.

Penalty-free early 401(k) withdrawals

There’s generally a 10% tax penalty if you take distributions from a 401(k) plan before you turn 59 ½. The SECURE 2.0 Act expands the circumstances where penalty-free “hardship” withdrawals can occur if the employer elects to provide them in the plan. The 10% penalty will be waived for:

• Individuals certified by a physician as having a terminal illness or condition that can reasonably result in death in 84 months or less (withdrawals of any amount).
• Individuals in federally declared natural disaster areas (withdrawals up to $22,000).
• Domestic abuse victims within the past 12 months (withdrawals up to the lesser of $10,000 or 50% of the vested balance of the account). All or a portion must be repaid within three years.
• Individuals facing financial emergencies (one withdrawal per year up to $1,000 is allowed). Certain criteria must be met before they can make subsequent withdrawals.

529 plan rollovers to Roth IRAs

You can now roll up to $35,000 of leftover funds in a 529 education savings plan into a Roth IRA over several years. Balances above $35,000 can be taken as a non-qualified distribution, but the earnings portion of the distribution is subject to income tax and a 10% penalty.

This provision reduces the fear of overfunding a 529 plan by allowing excess funds to be used for other needs without penalty. The $35,000 threshold is a lifetime limit subject to a few restrictions:

• The 529 account must have been in place for at least 15 years.
• Funds must be transferred directly into a Roth IRA for the same beneficiary.
• Any 529 plan contributions made in the previous five years, and any earnings attributed to those contributions, are not eligible to be rolled into a Roth IRA.
• The amount transferred into a Roth IRA each year must be within annual Roth IRA contribution limits.  

Student loan debt and retirement contributions

Employers can elect to make contributions to retirement plans on behalf of employees who are still repaying student loans, even if those employees do not make retirement plan contributions themselves. Employer contributions can match the amounts of student loan debt repaid by the employee in a given year.

This provision creates an excellent opportunity for employers to offer an incentive to attract and retain employees while helping younger workers start retirement savings despite student loan burdens.

Qualified charitable distributions (QCDs)

As stated previously, individuals who are 70 1/2 and older can direct over $111,000 in distributions in 2026 from a traditional IRA to a qualified charitable distribution. The contribution limit is indexed for inflation annually.

You also have a one-time opportunity to use a QCD of up to $55,000 in 2026 from an IRA to fund a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT) or a charitable gift annuity (CGA).  As in a regular QCD distribution, there is no tax deduction for making this gift; however, the distribution will count against the RMD for that year.

Annuities

The maximum amount you can use to purchase qualified longevity annuity contracts (QLACs) is $210,000 in 2026 and indexed annually for inflation. The “25% of account balance” limitation is eliminated.

Long-term care premiums withdrawals

Beginning in 2026, withdrawals of up to $2,500 per year from an employer-sponsored retirement plan can be used to pay premiums on qualified long-term care contracts. 

Saver’s Match Program

The current “Saver’s Credit” program allows those meeting lower income thresholds to claim a tax credit for contributions made to an employer retirement plan or IRA. This credit will be replaced by a “Saver’s Match” beginning in 2027.

The match will equal up to 50% of the first $2,000 contributed by an individual to a retirement account each year, or up to $1,000 (or $2,000 for married couples filing jointly). This will be a federal matching contribution deposited into the saver’s traditional retirement account. 

Navigate your retirement planning with confidence

The SECURE 2.0 Act will change the rules around retirement savings and retirement plan distributions over the next few years. These provisions can be complex, so consider working with a financial professional to understand how they affect your retirement situation.

Review your employer-sponsored retirement plan details to see if your employer has elected to add any optional SECURE 2.0 Act provisions. If any apply to your situation, a financial professional can help you review your current strategy and discuss which adjustments may be most beneficial. You may also wish to consult with your tax advisor to understand the potential tax ramifications of any decisions you make.

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