Saving for Retirement Is Getting Easier in 2024 Due to the SECURE 2.0 Act
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This article is part of Money's new-year checklist — a 10-step guide to crushing your financial goals in 2024 (and beyond). For expert predictions about the future of mortgage rates, the Fed's next steps and more, read our cover story.
Between shrinking employer benefits and a rising cost of living, saving enough for a comfortable retirement can feel like a pipe dream for many Americans. But starting this year, new federal legislation could lower some of the biggest barriers to putting away money for the future.
The retirement planning landscape is getting a major facelift in 2024 as several provisions of 2022’s SECURE 2.0 Act kick in, bringing key changes intended to expand workers’ savings and incentivize employers to provide benefits.
In the past, retirement planning was modeled on the “three-legged stool,” or a combination of personal savings, employer pensions and Social Security payments. But as pensions become rarer and Social Security benefits lose purchasing power, SECURE 2.0 could be the foundation modern workers need to save for retirement while covering their everyday expenses.
“We’re in an era where retirement planning falls on the individual,” LeTian Dong, a financial advisor in Farmingdale, New York, tells Money. “The new rules will make retirement savings contributions and distributions more flexible.”
Here are a few important SECURE 2.0 provisions you should know moving forward.
Automatic 401(k) enrollment
Workers whose employers offer retirement savings plans like 401(k)s usually have to sign up for benefits to participate. After Dec. 31, 2024, most new 401(k) and 403(b) plans will automatically enroll employees unless they opt out. This is expected to drastically expand the number of people enrolled in employer retirement plans: A 2012 study by the nonprofit Ariel Education Initiative showed that automatic enrollment in 401(k)s significantly increased participation, especially for lower-income, young, Black and Latinx employees.
Deferrals for auto-enrolled participants will be at least 3% of their paycheck but can be up to 10%. This can be changed according to the employee’s wishes, and they can also opt out after they’re enrolled if they change their minds (though the rule of thumb is that workers should contribute at least enough to get their employer match).
Student loan debt and education savings match
Workers can have qualified student loan payments matched by their employer in a 401(k), 403(b) or SIMPLE individual retirement account (IRA) starting in 2024. Though employers won’t be required to match payments, those that do will help workers overcome a major impediment to saving for retirement. A 2023 survey from financial services company Corebridge Financial found that 75% of student loan borrowers said that the resumption of repayment in October 2023 would hurt their ability to contribute to their retirement accounts.
The way the provision works is simple: Instead of matching workers’ contributions to retirement accounts, participating employers match the same amount of money that workers pay toward their student loans. All workers have to do is make sure they opt for the new benefit (if applicable) and make timely payments.
That’s not the only new education-related benefit of SECURE 2.0. Previously, withdrawing money from a 529 college savings plan for non-qualified expenses came with penalties. Under SECURE 2.0, though, beneficiaries will now be able to roll over leftover money in their 529 account into a Roth IRA after 15 years. There are a few conditions: Beneficiaries can only roll over up to $35,000 over the course of their lifetime. Any rollovers are also subject to annual contribution limits for Roth IRAs. (For 2024, that limit is $7,000.)
Tweaks to RMDs
Anyone with a tax-deferred retirement account must eventually make required minimum distributions (RMDs), or specific annual withdrawals, to avoid hefty penalties. Under the original SECURE Act of 2019, plan participants were required to start making RMDs at 72 years old.
In 2024, RMDs will no longer be applicable to non-IRA Roth accounts. SECURE 2.0 raised the starting age for RMDs to age 73 in 2023, and it will increase again to age 75 in 2033. The law also reduced the penalty for not withdrawing the required minimum from 50% to 25% of an account holder’s RMD (and, if corrected within two years, to 10%).
More flexible hardship distributions
Taking money out of tax-deferred retirement accounts early generally comes with an additional 10% tax. In 2024 and beyond, workers can make penalty-free hardship withdrawals up to $1,000 for expenses relating to personal or family emergencies once a year. However, you won’t be able to make another emergency distribution unless you repay what you withdrew within three years.
Victims of domestic abuse who are younger than 59 1/2 can withdraw up to $10,000 from their IRA or 401(k) without penalty.
SECURE 2.0 also changes 403(b) distribution rules to match those of 401(k)s starting in 2024. Before, only employee contributions (not including earnings) were available in some instances for 403(b) hardship distributions.
Coverage for part-time employees
Employers will be required to allow certain part-time employees to participate in their 401(k) plans. If you’re a part-time worker who clocked at least 500 hours of work a year for three years in a row starting Jan. 1, 2021, you’ll have the option to enroll in your employer’s 401(k) offering as of this year.
The years of service requirement will be reduced to two years beginning in 2025.
Emergency savings accounts
Many workers struggle to build emergency savings, which can force them to make early withdrawals from their retirement savings when crisis strikes. Unfortunately, this can lead to penalties that also harm their financial security in the short term.
Beginning this year, employers that offer defined contribution retirement plans (aka a 401(k) or 403(b)) can automatically enroll their non-highly compensated employees — those who own at least 5% of the company or make over $150,000, according to the IRS — in pension-linked emergency savings accounts up to 3% of their salary.
Balances are capped at $2,500, though employers can set a lower limit. Beyond the cap, contributions can be directed to an employee’s Roth defined contribution plan if they have one, or they can stop contributing until the balance falls below the cap. There aren’t any fees or charges for the first four withdrawals per year, and the funds can also be cashed out or rolled into the employee’s Roth defined contribution plan or IRA.
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