The SECURE Act 2.0: What Accounting Professionals Need to Know

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was initially enacted on December 20, 2019. Although it brought about important adjustments to the retirement system in the United States, it fell short of providing a comprehensive solution to the retirement crisis in the country. 

On December 29, 2022, President Joe Biden signed the SECURE Act 2.0 into law.1 The SECURE Act 2.0 built on the original bill and made significant advancement in addressing the retirement savings gap with over 90 new provisions related to retirement. 

SECURE Act 2.0’s provisions benefit small businesses and individuals saving for retirement by: 

• Encouraging earlier retirement savings. 
• Providing incentives for small businesses to offer retirement benefits. 
• Adding more flexibility for individuals 60 and older to save toward retirement. 

Important provisions 

With 90 new provisions, the SECURE Act 2.0 has a lot to decipher. Let’s take a look at some of the most notable provisions:  

Auto-enroll is mandatory for new plans starting in 2025 

New plans started after December 29, 2022, will be required to utilize auto-enrollment on their plans beginning with the 2025 plan year. Auto-enrollment allows an employer to sign an employee up to participate in the company's 401(k) plan unless they choose to opt-out. 

Auto-enrollment can help boost participation rates and help build employees’ financial futures by requiring them to actively opt out of the plan to participate rather than opting in. 

Employers may offer small, immediate financial incentives to save for retirement 

The provisions of SECURE Act 2.0 allow employers to offer small, immediate incentives to encourage employees to contribute to their 401(k), such as low-amount gift cards. 

Increased access for part-time workers   

Starting January 1, 2024, the original SECURE Act enabled long-term, part-time workers to participate in 401(k) plans with their employers. This required employers to offer plans to employees who had either completed one year of employment (not exceeding 1,000 hours) or three consecutive years where they had worked at least 500 hours. 

The SECURE Act 2.0 adjusted the latter stipulation to only two years. Therefore, starting in 2025, employees who have worked 500 hours per year for two consecutive years will be eligible for their company’s retirement plan, helping to bridge the gap in retirement savings for even more working Americans. 

Increased savings flexibility for those 60 and over 

There are three major changes to catch-up contributions established within the SECURE Act 2.0: 

Expanded catch-up contribution ages:  The SECURE 2.0 legislation broadens the eligibility for catch-up contributions, allowing individuals aged 60, 61, 62, or 63 (but not older than 63) to defer additional funds into the plan. Starting with the 2025 plan year, older participants can take advantage of an enhanced catch-up contribution. This increase raises the savings limit to either $10,000 or 150% of the catch-up amount for 2024, adjusted for inflation. 

IRA catch-up contribution indexed to inflation: The IRA catch-up contribution limit for those aged 50 and over is currently $1,000. Starting in 2024, this amount will be indexed to inflation allowing more savings. 

Increased mandatory RMD age from 72 to 73 and 75: Proposed legislation would bump the required minimum distribution (RMD) age to 73 as of January 1, 2023 and then to 75 as of January 1, 2033. This chance allows individuals to save longer. 

The legislation also reduces the tax penalty for failing to take RMDs. Previously the penalty was 50%, and now it’s 25%. In addition, if failures to take an RMD are corrected promptly, the excise tax will be reduced to 10 percent (from 25%). 

Reduced penalties for withdrawing money due to emergency   

Effective from 2024 onwards, individuals are allowed to make a penalty-free withdrawal from their 401(k) once per year, amounting to a maximum of $1,000. Currently, if participants withdraw from their retirement plan they face a 10% penalty. This withdrawal option is available for situations involving unforeseeable or urgent financial requirements related to personal or family emergencies. Participants have the option to repay this withdrawal within a three-year timeframe.  

Additionally, the SECURE Act 2.0 adjusts hardship withdrawal rules to also cover 403(b) plans. 

New programs to help employees pay down student loans 

As college graduates enter the workforce, they often neglect saving for retirement in an attempt to pay down their student debt loans faster. The SECURE Act 2.0 provides a way for employers to treat student loan payments as elective deferrals for purposes of matching contributions. Starting in January 2024, employees will be able to receive a match from their employers on their student loan repayments, allowing them to start building their financial future while paying down their debt. 

What does this mean for you? 

SECURE Act 2.0 is working to reduce the retirement savings gap and an opportunity for small businesses to maximize the opportunity to start offering retirement benefits for their employees. 

If your clients are not already offering retirement benefits to their employees, the SECURE Act 2.0 tax incentives may make it the right time to do so. In part two of this series we’ll dive specifically into the tax provisions of the SECURE Act 2.0 and how those may benefit your clients. 

Interested in learning more about how the SECURE Act 2.0 legislation may benefit your clients? Learn more here.