The SECURE Act 2.0 is sending some big changes regarding how Americans save for retirement and here are the three key changes that will come into effect for those with a 401(k) plan from next year, 2025. These updates are made to make it possible for more people to save, especially for people who have not saved in the past. It does not matter if you are just starting or you are a few months from your retirement, these changes may greatly affect how you prepare for your golden years financially.
What is the SECURE Act 2.0?
The SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0 is a continuation of the initial 2019 legislation which focused on enhancing retirement savings. It was approved in 2022 in efforts to encourage more Americans to save adequately for retirement. Although some amendments have taken effect, many of the most significant changes are expected in 2025.
Here are the three biggest changes to 401(k) plans that will affect you starting in 2025.
1. Automatic Enrollment in 401(k) Plans
One of the biggest barriers to saving is simply getting started. Many employees either forget or delay signing up for their company’s 401(k) plan, losing out on valuable savings time. That’s where automatic enrollment comes in.
- Automatic enrollment: Starting in 2025, all new 401(k) plans will automatically enroll eligible employees unless they specifically opt out. This means you will no longer need to sign up on your own — it will be done for you.
- Exemptions: This change does not apply to small businesses with fewer than 10 employees, companies less than three years old, churches, or government entities.
- Contribution rate: Once automatically enrolled, your employer will select your initial contribution rate, usually between 3% and 10% of your salary, with 6% being common. This rate will increase by 1% each year until it reaches your employer’s set maximum, which could be 10% or even 15%. Of course, you can choose to opt out or adjust these settings if you prefer.
2. Faster eligibility for part-time workers
Part-time workers often have to wait years before they can join a company’s 401(k) plan. This new rule makes it easier for them to start saving sooner.
- Current rules: Right now, part-time employees must work 1,000 hours in a year or 500 hours over three consecutive years to qualify for their employer’s 401(k) plan.
- 2025 changes: Under the SECURE Act 2.0, that three-year requirement will be reduced to just two consecutive years, speeding up the process for part-timers to participate in their employer’s retirement plan.
This is great news for people working part-time jobs who want to build a secure retirement. Just keep in mind that the contribution limit stays the same across all plans, so if you have more than one 401(k), you’ll need to split your contributions.
3. Increased catch-up contributions for older workers
One of the main focuses of SECURE Act 2.0 is helping older workers who feel they haven’t saved enough for retirement. The law increases what older workers can contribute in the final years before they retire.
- Current catch-up limit: For workers 50 and older, the 2024 catch-up contribution limit is $7,500.
- 2025 changes: In 2025, workers aged 60 to 63 will be allowed to contribute even more – either $10,000 or 50% more than the standard catch-up limit, whichever is greater. These limits will also adjust for inflation after 2025 to keep pace with rising costs of living.
This change is aimed at helping those nearing retirement build a more substantial savings cushion, especially since a recent AARP survey found that 61% of adults aged 50 and older feel they will not have enough money saved for retirement.
What does this mean for your retirement?
With features such as automatic enrollment, enabling part-time workers to qualify faster, and increasing contribution limits to older workers, the SECURE Act 2.0 ensures that you save for your future easily. The new changes are aimed at ensuring that anyone, regardless of their career stage, can have a firm grip on their retirement savings.
In case you or a friend have not begun retirement planning or have no idea how much you have saved, you can take advantage of 2025 to secure a better financial future.
