SECURE Act 2.0 offers powerful new ways to save more for retirement

What you need to know about the recently passed law that could revolutionize retirement planning for people of all ages.

If you are looking for ways to improve your retirement readiness, there is sweeping new legislation that can help you start earlier, save longer and make up for lost time. The SECURE 2.0 Act of 2022, signed into law last December, makes major changes to existing retirement savings rules.

“A quarter of working Americans have nothing saved for retirement.¹ The new regulations are designed to encourage increased plan participation and savings,” notes Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office for Merrill and Bank of America Private Bank.

“While some changes happen immediately, others take effect over several years,” says Debra Greenberg, director, Personal Retirement Product Management at Bank of America. “Still, it is a good idea to speak with your tax specialist and financial advisor now about whether you are saving enough for retirement and how you might be able to take advantage of the new law’s provisions.” Here are some highlights to consider, depending on your stage of life or situation.

Just starting out?

You soon may find yourself automatically enrolled in a company retirement plan. SECURE 2.0 requires companies that established retirement plans after the law’s enactment to begin automatically enrolling eligible employees in 2025. While you may opt out, “automatic enrollment drives home the importance of saving early and often,” Greenberg says. “Even a small difference in the amount you save early in your career can make a big difference over time.”

Paying off student loans? You could get help with saving for retirement. “It is hard to save when you are repaying a sizable student loan,” Greenberg says. Starting in 2024, employers may offer matching contributions to retirement plans based on an employee’s qualified student loan repayments (certain limits apply). While the match is not required, companies might find that this benefit helps attract promising candidates.

Got leftover 529 education savings funds? You may be able to jump start your beneficiary’s retirement savings. While college costs keep rising, “some students receive scholarships or grants that could leave unspent money in a 529 account,” Greenberg notes. As of 2024, that money may be rolled directly into a Roth IRA for the beneficiary of the 529 without federal income tax or the usual 10% penalty for noneducation withdrawals. Among the many restrictions, the 529 must have been open for 15 years.

Nearing (or in) retirement?

Larger “catch-up” contributions can help you make up for lost time. Starting in 2025, catch-up provisions for savers age 50 and over will offer an additional boost: Those aged 60 through 63 will be able to contribute $10,000 or 150% of the standard catch-up amount (whichever is greater) to 401(k) and 403(b) plans. For SIMPLE IRAs and SIMPLE 401(k)s, the limits are $5,000, or 150% of the annual catch-up contribution limit. “After 2025, these increased catch-up amounts will be indexed annually for inflation,” Greenberg says. One caveat: Employees earning more than $145,000 will have to make any catch-up contributions to a Roth plan with post-tax dollars.

You can keep money invested longer. Anyone turning 72 after January 1, 2023, can wait until age 73 before taking required minimum distributions (RMDs) from their retirement plans and IRAs. That is up from the prior year’s RMD age of 72 and 70½ in 2019. By 2033, the age will rise to 75. “The extra time allows you the opportunity to keep more of your savings invested,” notes Greenberg. The bill also reduces additional taxes for failing to take RMDs on time (to 25% of the missed distributions, down from 50%) and fixes an RMD anomaly for Roth investors. “While Roth IRAs typically do not require RMDs, Roth 401(k) and 403(b) plans do. That requirement ends in 2024,” Greenberg notes.

Consider giving more to charity. Individuals can still make qualified charitable distributions (QCDs) of up to $100,000 per year starting at age 70½. That amount will be adjusted annually for inflation, with the first adjustment in 2024. SECURE 2.0 expands existing QCD rules by enabling individuals to make one-time distributions of up to $50,000 from their IRAs to split-interest trusts such as charitable remainder trusts and charitable gift annuities, starting in 2023.

Own a small business without a retirement plan?

Here is incentive to start one. “Starting in 2023, companies with 50 or fewer employees can earn a tax credit worth 100% of administration costs, or up to $5,000 per year,” Greenberg says. “That could mean up to $15,000 in potential savings—a big number for a small employer.” Previously, those businesses were eligible for the same 50% credit available to companies with up to 100 employees.

These are just a few of the SECURE 2.0 changes affecting retirement savings. Be sure to consult with your tax professional and financial advisor to learn more before making any decisions.

¹ Federal Reserve, “Economic Well-Being of U.S. Households,” May 2022.