Retirement Rules Are Changing (Again): 2025 SECURE 2.0 Act Updates Explained
Audit Senior
It’s been over two years since the SECURE 2.0 Act became law, and while a lot has already taken effect, some of the biggest changes are still coming. There are three major updates in 2025: employees aged 60 to 63 will be able to contribute more to their retirement plans; long-term part-time workers will qualify to participate in their employers’ 401(k) plan; and new 401(k) and 403(b) plans will be required to automatically enroll participants upon eligibility.
The SECURE 2.0 Act of 2022 (“SECURE 2.0 Act”) is a major piece of retirement legislation that was signed into law at the end of 2022. It builds on the original SECURE Act of 2019 and aims to make it easier for Americans to save for retirement. The law includes dozens of changes designed to help people put more money away for retirement, make retirement plans more accessible, and simplify the rules for both individuals participating in plans and their employers.
Catch-Up Contributions
If you are a participate in a 401(k) or 403(b) plan and turn 50 by the end of the year, you are allowed to make extra “catch-up” contributions – basically putting more money into your retirement account than the usual annual Internal Revenue Service (IRS) limit, as long as your plan allows it. In 2025, the regular contribution limit is $23,500, but if you are 50 or older, you can contribute up to an additional $7,500, bringing your total allowable contribution limit to $31,000.
Thanks to the SECURE 2.0 Act, a super catch-up contribution will be available starting in 2025 for participates aged 60 to 63. This group of participants will be allowed to contribute additional contributions up to the greater of $10,000 or 50% more than the regular catch-up amount. For the 2025 contribution year, the additional amount permissible is $11,250.
These extra contributions can be made on either a pre-tax or Roth (post-tax) basis, depending on what your employer’s plan offers. Also, starting in 2025, catch-up contribution limits will be adjusted each year for inflation. While employers aren’t required to offer catch-up contributions, most plans are expected to include them. This change becomes effective for taxable years beginning after December 31, 2024.
Reduction in Service Requirement for Long-Term, Part-Time Employees
In the past, part-time workers were not eligible to join their employers’ 401(k) plans if they didn’t work at least 1,000 hours a year. But that changed with the SECURE Act of 2019, which provides that, except in the case of collectively bargained plans, employers maintaining a 401(k) plan must have a dual eligibility requirement under which an employee must complete either one year of service (with the 1,000-hour rule) or 3 consecutive years of service (where the employee completes at least 500 hours of service). Starting with plan years that begin after December 31, 2024, the SECURE 2.0 Act shortens that requirement to just two years.
Required Automatic Enrollment for New Plans
Another big change coming with the SECURE 2.0 Act is automatic enrollment for new 401(k) and 403(b) plans. If a plan was started on or after December 29, 2022, employers will have to automatically enroll eligible employees using what’s called an “eligible automatic contribution arrangement” That means employees will be signed up by default, with a starting contribution rate between 3% and 10% of their pay, as defined by the plan. Each year, that rate will go up by 1% until it hits at least 10%, but no more than 15%. Of course, employees can still choose to opt out or adjust how much they contribute.
As with most rules, exceptions exist. In this case, the rule does not apply to small businesses with fewer than 10 employees, companies that are less than three years old, or government and church plans. The automatic enrollment requirement becomes effective for plan years beginning after December 31, 2024.
Conclusion
The deadline to amend retirement plans to comply with the SECURE 2.0 Act was extended to December 31, 2026. However, plans must be operating in accordance with the effective date of each new provision. For retirement plans related to collective bargaining agreements, the deadline is extended to December 31, 2028, and for government plans, it’s December 31, 2029. While formal amendments are not required just yet, employers should start applying the SECURE 2.0 Act provisions in accordance with the provision’s effective date.
Louis Plung & Company will continue to keep you up to date on the SECURE 2.0 Act and how changes will affect employees, employers, and plan administrators. If you have specific questions, please contact your Louis Plung advisor, or email [email protected].
