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Understanding SECURE Act 2.0

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What is the SECURE Act 2.0?

The SECURE Act 2.0 is a law designed to improve retirement savings opportunities. Building on the original SECURE Act, it introduces changes that expand access to retirement plans, increase savings potential, and simplify plan administration.

What are the key provisions of the SECURE Act 2.0?

  • Automatic Enrollment: Starting in 2025, new 401(k) and 403(b) plans must automatically enroll eligible employees at a minimum of 3%, increasing annually until reaching at least 10%. Employees can opt out.
  • Increased Catch-Up Contributions: In 2025, individuals aged 60 to 63 can contribute up to $10,000 or 50% more than the standard catch-up limit.
  • Roth Matching Contributions: Employers can now offer matching contributions on a Roth (after-tax) basis. Betterment does not currently support this feature.
  • Student Loan Matching: Beginning in 2024, employers can match employees' student loan payments with retirement plan contributions. Betterment supports this Qualified Student Loan Payment (QSLP) matching feature for Pro and Flagship plans.
  • Emergency Savings Accounts: Employers can offer retirement-linked emergency savings accounts, allowing certain employees to contribute up to $2,500 on an after-tax basis. Betterment does not currently support this feature.
  • Required Minimum Distributions (RMDs): The age for RMDs increases to 73 in 2023 and to 75 in 2033, with reduced penalties for non-compliance.

What if an employee fails to opt out but didn’t mean to contribute?

If an employee fails to opt out of automatic enrollment but didn’t intend to contribute, they may still be eligible for a permissible withdrawal under an Eligible Automatic Contribution Arrangement (EACA).

EACA rules allow employees to withdraw automatic contributions within 90 days of the first deduction. This means they can request a refund of contributions without facing the usual 10% early withdrawal penalty. However, the withdrawn amount will still be subject to income tax.

To request a withdrawal, the employee should:

  • Update their deferral rate to 0% to stop future contributions.
  • Go to Rollover or Withdraw > Cash Withdrawal in their account portal.
  • Select the EACA prompt and follow the steps to complete the process.
  • Submit the request within 90 days to remain eligible.

If more than 90 days have passed, contributions generally must remain in the plan unless another withdrawal option applies.

How does the SECURE Act 2.0 affect small businesses?

The Act provides tax credits to encourage small businesses to start retirement plans. Employers with up to 50 employees can receive a credit covering 100% of start-up costs, plus an additional credit for employer contributions, making it easier to offer retirement benefits.

When do the provisions take effect?

  • 2023: Changes to RMDs, optional Roth matching, and small business tax credits.
  • 2024: Student loan matching, emergency savings accounts, and penalty-free emergency withdrawals.
  • 2025: Mandatory automatic enrollment for new plans and increased catch-up limits.

How does this impact employees with student loans?

Starting in 2024, employees making qualified student loan payments can receive employer matching contributions to their retirement plan, even if they are not contributing directly to the plan. Betterment supports this feature, allowing employers to match student loan payments as retirement contributions.

What are the new catch-up contribution rules?

Beginning in 2025, individuals aged 60 to 63 can make catch-up contributions up to $10,000 or 50% more than the standard catch-up limit. From 2024 onward, employees earning over $145,000 must make catch-up contributions on a Roth (after-tax) basis.

How does the SECURE Act 2.0 support emergency savings?

Employers can offer emergency savings accounts linked to retirement plans, allowing employees to contribute up to $2,500 on an after-tax basis with penalty-free withdrawals. Betterment does not currently support this feature.

The SECURE Act 2.0 introduces major improvements aimed at strengthening retirement security, making it easier for individuals and businesses to save for the future.