The SECURE 2.0 Act[1] introduced several major changes to 401(k) laws aimed at expanding coverage, increasing retirement savings, and simplifying retirement plan rules. Here are the seven key 401(k) provisions:
1. Higher Catch-Up Contribution Limits
Starting in 2025, individuals aged 60-63 can make catch-up contributions to 401(k) plans up to the greater of $10,000 or 50% more than the regular catch-up amount for that year (indexed for inflation).
This significantly increases the catch-up limits for older workers to boost their retirement savings in the final years before retirement.
2. Roth 401(k) Rule Changes
Effective 2024, the requirement to take required minimum distributions (RMDs) from Roth 401(k) accounts is eliminated, aligning the rules with Roth IRAs.
Participants can let their Roth 401(k) funds continue growing tax-free indefinitely.
3. Matching Contributions for Student Loan Payments
Starting in 2024, employers can amend their 401(k) plans to treat qualified student loan payments as elective deferrals for the purpose of receiving an employer matching contribution.
This allows employees to receive matching contributions without reducing their take-home pay.
4. Automatic Enrollment for New Plans
New 401(k) plans established after the effective date must automatically enroll participants upon eligibility, with an initial deferral rate of at least 3% but not more than 10%, increasing annually by 1% until reaching 10-15%.
5. Emergency Savings Accounts
Employers can offer emergency savings accounts linked to workplace retirement plans, allowing employees to contribute up to $2,500 in after-tax dollars for emergency expenses.
6. Penalty-Free Emergency Withdrawals
Starting in 2024, participants can take one penalty-free withdrawal of up to $1,000 per year from their 401(k) for emergencies without the 10% early withdrawal penalty.
7. Automatic Portability of Small Balances
The law facilitates the automatic transfer of small 401(k) balances (under $7,000) when an employee changes jobs, reducing the risk of lost accounts.
These changes aim to make 401(k) plans more accessible, flexible, and effective in helping Americans save for retirement, particularly for younger workers and those with student debt.
Comments