Upcoming 401(k) Plans Mandates Under SECURE Act 2.0
As retirement planning continues to evolve, legislative changes play a crucial role in shaping the landscape of retirement savings vehicles like 401(k) plans. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019, introduced significant reforms aimed at improving retirement security for Americans. Building upon the success and lessons learned from SECURE Act 1.0, SECURE 2.0 represents the next phase of enhancements to retirement savings legislation, specifically targeting 401(k) plans. Here’s a comprehensive overview of the upcoming mandates for 401(k) plans under SECURE 2.0:
Expansion of Automatic Enrollment/Increase: One of the key features of SECURE 2.0 is the expansion of automatic enrollment in 401(k) plans. Automatic enrollment has proven to be effective in increasing retirement savings participation rates among employees. Under SECURE 2.0, employers will be encouraged to adopt and expand automatic enrollment features by providing safe harbor protections and simplifying administrative requirements. This is aimed at making it easier for employers to implement and manage these features, thereby increasing retirement savings for more workers.
Increase in Age for Required Minimum Distributions (RMDs): The original SECURE Act increased the age at which individuals must start taking required minimum distributions (RMDs) from retirement accounts from 70½ to 72. SECURE 2.0 proposes further increasing this age to 75, allowing individuals to keep more money invested in their retirement accounts for a longer period. This change acknowledges longer life expectancies and aims to provide retirees with additional flexibility in managing their retirement savings.
Expansion of Catch-Up Contributions: SECURE 2.0 includes provisions to expand catch-up contributions for individuals aged 60-63. Starting in 2025, those within this age group can save an extra $10,000 in their 401(k), or 150% of the standard catch-up contribution limit per year. They will have the ability to take advantage of whichever plan is greater, allowing them to contribute more to their 401(k) plans beyond the current limits. This expansion is intended to help older workers boost their retirement savings as they approach retirement age, recognizing that many individuals may need to accelerate their savings efforts later in their careers. Small Business Retirement Plans: Recognizing the importance of retirement savings options for employees of small businesses, SECURE 2.0 includes incentives and provisions to encourage the establishment and maintenance of retirement plans by smaller employers. This includes tax credits and other financial incentives designed to offset the costs associated with setting up and administering retirement plans, making it more feasible for small businesses to offer these benefits to their employees.
Improved Access for Long-Term Part-Time Workers: SECURE 2.0 seeks to expand retirement savings opportunities for long-term part-time workers by requiring employers to include these employees in their 401(k) plans, provided they meet certain eligibility criteria. This ensures that more workers have access to retirement savings benefits, regardless of their employment status or hours worked.
SECURE 2.0 represents a significant step forward in enhancing retirement security for Americans by building upon the foundations laid by the original SECURE Act. By expanding automatic enrollment, increasing age limits for RMDs, enhancing catch-up contributions, supporting small business retirement plans, and improving access for part-time workers, SECURE 2.0 aims to make retirement savings more accessible, flexible, and beneficial for workers across the United States.
I’m here if you have any questions or comments. Have a great week, Jeff J. Kim, CFP® Corporate Retirement Plan Specialist Gerber Kawasaki
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Jeff J. Kim is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$3.16B billion in assets under management as of 9/30/24. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results.