The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, signed into law in late 2022, introduced a host of new rules aimed at modernizing retirement savings. This new law built upon the SECURE Act of 2019 efforts to increase retirement plan coverage and retirement savings. It also made numerous other changes including major changes to distribution rules from retirement accounts. As we move into 2025, several key provisions will take effect, in addition to the provisions that already took effect in 2024, making this an important time to revisit your retirement strategy. These updates can impact how you save, invest, and plan for the future. In this article, we’ll review SECURE Act 2.0 updates for retirement planning and break down the significant changes to consider.
1. Changes to Required Minimum Distributions (RMDs) for account owners
One of the most noteworthy provisions of the SECURE Act 2.0 was the gradual increase in the starting age for Required Minimum Distributions (RMDs) from retirement accounts by account owners. As of 2025, the starting age for Required Minimum Distributions for retirement account owners is age 73. SECURE Act 2.0 also established another increase which will bring the starting age to age 75 by 2033.
This adjustment provides more flexibility for those who wish to delay withdrawing from their retirement accounts, allowing additional time for savings to grow on a tax-deferred basis.
However, it’s important to keep in mind how delaying RMDs might affect your overall tax strategy. You may want to engage in pro-active tax planning with your financial advisor if larger withdrawals later could push you into a higher tax bracket.
2. Changes to Required Minimum Distribution (RMDs) for heirs
Prior to the passage of the SECURE Act of 2019, heirs who inherited retirement accounts were allowed to “stretch” their withdrawals over their lifetime, allowing the account values to continue to grow tax deferred and reducing the annual tax burden for the heirs. The SECURE Act eliminated the stretch provision for most non-spouse heirs and introduced a shorter, 10-year window for them to take distributions from their inherited retirement accounts. There are a few exceptions to this rule for those deemed to be eligible designated beneficiaries (EDBs). EDBs may still be able to use a stretch IRA and are not subject to the 10-year rule.
Additional clarification on the new 10 year rules for mandatory distributions from inherited retirement accounts were issued in 2024. The new guidance has indicated that heirs who are not considered EDBs must take annual RMDs and must zero out the balance in their inherited retirement accounts by the end of the tenth year after they inherit the retirement account.
The additional guidance issued in 2024 is significant and can have a marked effect on tax bills for high-income heirs. There are many nuances to the new rules and they must be carefully followed by heirs who inherit retirement accounts. Reach out to a financial advisor to understand how the new rules affect you.
3.Expanded Catch-Up Contributions
For workers over 50, catch-up contributions offer an opportunity to contribute additional funds to retirement accounts beyond the standard annual limits. Beginning in 2025, the SECURE Act 2.0 allows for higher catch-up contributions for those who are between the ages of 60 to 63 by December 31.
Participants in workplace retirement plans, such as 401(k)s, can contribute an additional amount equal to the greater of $10,000 or 150% of the regular catch-up limit for those 50 and older. This enhanced contribution option could potentially assist individuals in their peak earning years in increasing their retirement savings. For example, the catch-up limit for those aged 50+ who are participating in company sponsored 401k plans is $7,500 so the enhanced catch-up contribution limit for those aged 60-63 is $11,250
Catch-up and enhanced catch-up contributions can continue to be made into regular tax-deferred 401(k) account in 2025. However, it’s worth noting that starting in 2026, the catch-up and enhanced catch-up contributions will need to be made to designated Roth 401(k) accounts if the individual earns more than $145,000 annually. This change means that the catchup and enhanced catch-up contributions will be taxed upfront, but future withdrawals will be tax-free, potentially offering tax advantages down the line.
SEE ALSO: Making the Most of Catch-Up Contributions in Your 50s and Beyond
4. Roth Matching Contributions
Employers are now permitted to offer Roth matching contributions. Previously, matching contributions were made only on a pre-tax basis. This change allows workers to elect to allocate their employer match to a Roth account, meaning the funds will grow tax-free and can be withdrawn tax-free during retirement.
While this may provide more options for tax diversification in retirement, employees should carefully evaluate their individual tax situation to determine whether Roth or traditional matching contributions are more beneficial. It is important to know that Roth matching contributions are considered taxable income to the employee and will generate a 1099-R at year-end in addition to the standard W2 provided by the employer. It is important to ensure that sufficient taxes are being withheld from wages to account for the income that will be reported on the 1099-R.
5. Auto-Enrollment and Auto-Escalation
Beginning in 2025, new workplace retirement plans will be required to include automatic enrollment and auto-escalation features. Employees will be automatically enrolled in their employer’s retirement plan at a contribution rate of at least 3%, with annual increases of 1% until reaching a minimum of 10% and a maximum of 15%.
These features aim to increase participation in retirement plans and encourage higher savings rates over time. However, employees can opt out or adjust their contributions based on their preferences and financial needs.
6. 529 Plan Rollovers to Roth IRAs
For families who have been diligently saving for education through 529 plans, the SECURE Act 2.0 introduced a new option. Starting in 2024, unused funds in a 529 plan can be rolled over into a Roth IRA for the plan beneficiary, subject to certain conditions.
The rollover amount is capped at $35,000 over the beneficiary’s lifetime, and the Roth IRA contribution limits still apply. Additionally, the 529 account must have been open for at least 15 years to qualify. This provision offers a potential solution for excess funds in 529 plans, creating an opportunity to enhance long-term retirement savings.
SEE ALSO: Financial Goal Setting for the New Year: Three Strategies
7. Student Loan Payment Matching Contributions
For employees juggling student loan payments, the SECURE Act 2.0 offers a valuable incentive. Beginning in 2024, employers have been allowed to make matching contributions to an employee’s retirement account based on their student loan payments.
This provision aims to help younger workers who might otherwise delay retirement savings due to student debt obligations. By receiving employer contributions, these individuals can begin building their retirement savings sooner, even if they are unable to contribute to their retirement plan directly.
How to Adapt Your Retirement Strategy
The SECURE Act 2.0’s provisions underscore the importance of having a flexible and forward-thinking retirement plan. Whether you’re nearing retirement or still building your nest egg, these updates may present new opportunities to adjust your strategy.
It’s important to review your plan annually and evaluate how these changes could impact your savings trajectory, tax situation, and withdrawal strategy. Collaborating with a financial professional can help you navigate the evolving retirement landscape and tailor a plan that aligns with your goals.
Final Thoughts on SECURE Act 2.0 Updates for Retirement Planning
The SECURE Act 2.0 represents a significant shift in retirement planning, offering enhanced opportunities for saving and greater flexibility in account management. Understanding these updates can help you make informed decisions and prepare for the road ahead.
As with any financial decision, careful consideration and regular review of your plan are essential. Stay informed and proactive to make the most of these changes in 2025. If you’d like professional guidance, please don’t hesitate to reach out to the Wade Financial Advisory team to schedule a call to learn more.
