Secure Act 2.0 Reshapes Retirement Plans

Just before Christmas, President Biden signed into law an omnibus bill dubbed the “Secure Act 2.0,” which included a workplace retirement access package designed to add new savings plans and reshape some of the rules and restrictions governing most 401(k) plans.


Congress passed the Secure Act in 2019, which raised the Retired Minimum Distributions (RMD) age to 72, limited the withdrawal period for inherited IRAs to 10 years, and generally encouraged employers to offer better 401(k) plans. 

What does Secure Act 2.0 change? 

The Secure Act 2.0 is comprised of approximately 90 sections and is too comprehensive to address in a single article.  This article focuses on four fundamental elements, which are summarized below.

Automatic Enrollment 

Effective for plan years beginning after December 31, 2024, participants will be automatically enrolled in 401(k) and 403(b) plans upon becoming eligible.  The initial automatic enrollment amount for individuals in their first year of participation must be between 3-10%.  For each year thereafter, the enrollment percentage increases by 1% until the contributions reach at least 10% but not more than 15%.  All current 401(k) and 403(b) plans are grandfathered. However, there will be an exception to the automatic enrollment for small businesses with 10 or fewer employees, new businesses in existence for less than three years, and church and governmental plans.

Increase in RMD Age

As it stands, participants are generally required to begin taking minimum distributions from their retirement plans at age 72 to help ensure they spend such savings during their lifetime.  The Secure Act of 2019 increased the required minimum distribution age to 72.  The Secure Act 2.0 further increases the required minimum distribution age to 73 starting on January 1, 2023 – and further increases the age to 75 beginning on January 1, 2033.

Higher Catch-Up Contributions

Employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan in excess of the otherwise applicable limits.  The general limit on catch-up contributions for 2021 was $6,500. Effective for taxable years beginning after December 31, 2024, for individuals who have attained ages 60-63, the Secure Act 2.0 increases these limits to the greater of $10,000 or 50% more than the current catch-up contribution limit. 

Contribution Limit Increase for SIMPLE Plans

Under current law, the annual contribution limit for employee elective deferral contributions to a SIMPLE IRA plan is $14,000 and the catch-up contribution limit beginning at age 50 is $3,000.  Effective for taxable years beginning after December 31, 2023, the Secure Act 2.0 increases the annual deferral limit and the catch-up contribution at age 50 by 10%.

The Bottom Line

As the new rules take effect, individuals and employers need to be aware of the requirements and the impact on their retirement plans. For more information about the Secure Act 2.0 or any other estate planning questions, contact attorney J.R. Trockman or any of KDDK’s Estate Planning attorneys.

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