Planning for retirement can be overwhelming, but one major factor that can significantly impact your savings is legislative changes. The SECURE 2.0 Act, passed by Congress in 2022, introduces new rules aimed at boosting retirement savings for Americans.
Expanding on the 2019 SECURE Act, SECURE 2.0 includes measures such as automatic enrollment, enhanced catch-up contributions, and quicker eligibility for part-time workers. Some of these changes have already taken effect, while others will roll out by 2027. Here’s what you need to know about the changes coming in 2025.
Automatic Enrollment
One of the most impactful updates to the 401(k) plans is automatic enrollment for new company plans. Before this change, employees had to manually opt into their company’s 401(k) plan, leading to many missing out on months of valuable savings. With SECURE 2.0, all new 401(k) plans must automatically enroll eligible employees, making it easier for workers to start saving immediately. However, employees can still choose to opt out if they wish.
Certain exemptions apply. Companies with fewer than 10 employees, businesses less than three years old, churches, and government entities do not have to comply with the automatic enrollment mandate. For those who are automatically enrolled, employers will set an initial contribution rate, typically between 3% to 10% of an employee’s salary. The most common starting rate is 6%, but this can vary. Each year, the contribution rate will increase by 1% until it reaches the employer’s specified maximum, which could be 10% or 15%.
Part-Time Workers
For many part-time workers, qualifying for a 401(k) plan has been a challenge due to the lengthy eligibility requirements. Currently, employees need to work 1,000 hours in a year or 500 hours over three consecutive years to become eligible for their company’s 401(k) plan. Starting in 2025, the SECURE 2.0 Act will reduce the eligibility requirement to two consecutive years of 500 hours. This change will help part-time employees save for retirement faster.
It’s important to note that while employees may participate in multiple employer-sponsored 401(k) plans if they have more than one job, the total annual contribution limit must still be divided among all the plans.
Older Workers
A significant concern for many older adults is that their retirement savings may not be enough to sustain them. An AARP survey found that 61% of people aged 50 and over do not believe they have sufficient funds for retirement, and 20% have not even started saving. To address this issue, the SECURE 2.0 Act aims to increase catch-up contribution limits for older workers.
Currently, the catch-up contribution limit for workers aged 50 and over is $7,500 for 401(k) plans. In 2025, workers aged 60 to 63 will see an even higher limit, set at $10,000 or 50% more than the regular catch-up limit—whichever amount is greater. This adjustment will help older workers maximize their savings as they approach retirement. Additionally, the new limits will be indexed to inflation after 2025 to ensure they keep pace with rising costs.
Changes Matter
The changes introduced by the SECURE 2.0 Act are designed to help Americans save more effectively for retirement by making it easier to start saving, allowing part-time workers to qualify sooner, and enabling older workers to contribute more during the crucial years before retirement. These updates can play a significant role in helping you boost your 401(k) savings and prepare for a more secure financial future.
It’s essential to stay informed about these changes and consider how they might affect your retirement planning. Whether it’s ensuring you’re automatically enrolled in your new job’s 401(k) plan, taking advantage of the new catch-up contribution limits, or understanding the eligibility rules for part-time workers, being proactive will help you maximize your savings opportunities.
| Year | Age Group | Catch-Up Contribution Limit |
|---|---|---|
| 2024 | 50 and older | $7,500 |
| 2025 | 60 to 63 | $10,000 or 50% higher |
Automatic enrollment, quicker eligibility for part-timers, and higher catch-up contributions are valuable enhancements designed to support your retirement goals. Keeping up with these legislative updates ensures you can make informed decisions and take full advantage of the benefits.
FAQs
What is the SECURE 2.0 Act?
The SECURE 2.0 Act is a law that enhances retirement savings rules.
When will automatic 401(k) enrollment start?
In 2025, for all new eligible plans.
Who is exempt from automatic enrollment?
Small businesses, new companies, churches, and government entities.
What is the new catch-up limit for ages 60-63?
It’s $10,000 or 50% more than the standard catch-up limit.
Do part-time workers qualify faster for 401(k)?
Yes, eligibility is reduced to two consecutive years.
