6 Fast Facts About The Secure 2.0 Act & How It’ll Affect Your Retirement
If you feel behind in your retirement savings, you’re not alone. In fact, roughly 27% of Americans over age 59 have no retirement savings at all. At the end of 2022, the federal government took steps to help Americans on their path to retirement.
The Secure 2.0 Act was passed and signed into law by President Biden in late 2022. The new act builds on the Secure Act of 2017, which made some changes to the retirement system in the US. This act aims to help incentivize contributions to help Americans catch up on their retirement savings.
Let’s look at some ways the Secure 2.0 Act might help you reach your retirement goals.
Fast Fact #1: Student Loan 401(k) Match
In 2022, 43.5 million Americans faced student loan debt. This debt on its own is a burden, but the repayments can also impact your ability to save for retirement.
In the past, people with student loans might not have been able to contribute to employer-sponsored retirement plans. This could put them behind in retirement savings because they couldn’t contribute to the plan and were also leaving employer-matching contributions on the table.
Under the Secure 2.0 Act, employers can make matching contributions to your retirement account if you’re paying off student loan debt, even if you aren’t contributing anything yourself.
This provision will go into effect in 2024.
And while the matching contribution rules and contribution amounts will vary based on the employer, the student loan 401(k) match will help those paying off college debt begin saving for retirement.
Fast Fact #2: Emergency Savings Account
Another problem that can erode your retirement savings is the lack of an emergency fund. When people don’t have funds to cover emergencies, they often turn to their retirement accounts to cover costs. In fact, during 2022, 401(k) hardship withdrawals rose by 24%.
To help Americans save for retirement while building emergency savings, the Secure 2.0 Act created an emergency saving account that employers can help their employees build.
The act allows employers to automatically enroll non-highly compensated employees in a savings program. This means your employers can put aside up to 3% of your income each year, with maximum contributions of $2,500 annually, into another investment account.
You can use these funds to help cover emergencies as they arise. And if you use the funds in qualifying hardship situations, there is no penalty for withdrawing them.
A nice benefit of the Emergency Saving Provision is you can contribute to this account, and your employer can contribute to your employer-sponsored retirement plan at the same time. If you switch jobs or leave the company with funds left in the account, they can be rolled over into a Roth IRA.
Fast Fact #3: Saver’s Match
The Retirement Savings Contributions Credit, commonly called the Saver’s Credit, provides eligible workers with a non-refundable tax credit for contributions to retirement savings. Note: Non-refundable tax credits may reduce the taxes you owe down to zero, but they will never generate a refund.
Starting in 2027, the Secure 2.0 Act shifts the Saver’s Credit into a Saver’s Match. This means instead of getting a credit on your tax return, this match will be deposited directly into your retirement plan or IRA if you qualify.
The match program is equal to 50% of retirement contributions up to $2,000 per individual (effectively $1,000 maximum).
The Saver’s Match, like the current Saver’s Credit, will have an income phase-out.
Fast Fact #4: Automatic Enrollment in 401(k)
Understanding retirement plans and how to sign up for them can be a challenge in itself.
To help make retirement plans more accessible, the Secure 2.0 Act has created an automatic enrollment provision. Effective in 2025, new 401(k) and 403(b) programs will automatically enroll participants.
This will help Americans make the best use of retirement savings options by getting them enrolled in the plan from day one and removing some of the retirement plan guesswork. That said, you’ll be able to opt out at any time.
Fast Fact #5: Increased Catch-Up Contributions
Current rules allow people over age 50 to contribute a bit more towards their retirement to help them catch up before they retire. In 2023, the catch-up contribution for a 401(k) plan allows an individual to contribute an additional $7,500 towards their retirement.
The Secure 2.0 Act has increased these catch-up contributions.
Starting in 2025, those between the ages of 60 and 63 can make catch-up contributions towards their retirement of the greater of $10,000 or 50% more than the regular catch-up amount. Individuals over 50 can make catch-up contributions of the fixed amount of $1,000 starting in 2024.
How Secure 2.0 Might Affect Your Retirement
Between the rising cost of living, student loan debt, and emergencies, it can be difficult to save for retirement. The Secure 2.0 Act will positively change the US retirement system aimed at helping you retire when you’re ready.
With the addition of the Student Loan 401(k) Match and the Saver’s Match, your retirement can grow outside of your contributions or even if you aren’t making any.
Additionally, the Secure 2.0 Act has new provisions that could help you cover emergencies that arise. Because you can contribute to this plan while your employer contributes to your employer-sponsored retirement plan, you could both save for retirement and to be more prepared for emergencies.
Finally, if you’re 50 or older, the Secure 2.0 Act allows you to make larger catch-up contributions to your retirement account.
The Secure 2.0 Act has changed many things about retirement and hopefully will help Americans get back on track with their retirement savings.