The SECURE 2.0 Act passed in December 2022, builds upon the original SECURE Act of 2019 and aims to enhance retirement savings and expand access to retirement plans. Looking ahead to 2025, several key changes are set to take effect that could impact both employers and employees alike. Here’s a quick overview of the key payroll related changes and what to expect in 2025.
1. Increased Auto-Enrollment Requirements
Starting in 2025, new 401(k) and 403(b) plans established after December 28, 2022 will be required to include automatic enrollment features. This means that employees will be automatically enrolled in their employer’s retirement plan unless they opt out. The default contribution rate will be at least 3%, with a gradual increase to 10% over time (contributions will increase by 1% each year and will not exceed 15%). Employees can adjust their contribution rates as needed. This move aims to boost participation rates and encourage saving for retirement.
2. Higher Catch-Up Contribution Limits
For those aged 60 to 63, catch-up contribution limits will see a significant increase to their retirement accounts (401(k), 403(b), 457). In 2025, individuals in this age group can contribute the greater of $10,000 or 150% of the 2024 catch-up contribution limits. This is designed to help older workers accelerate their savings as they approach retirement.
3. Expanded Access to 401(k) Plans for Part-Time Workers
The eligibility criteria for part-time workers to participate in 401(k) plans will be expanded. Starting in 2025, employees who work at least 500 hours per year for 3 consecutive years will be able to join their employer’s retirement plan. This change is intended to ensure that more employees have the ability to benefit from retirement savings.
4. Enhanced Emergency Savings Accounts
SECURE 2.0 introduces the option for employers to offer emergency savings accounts within retirement plans. By 2025, these accounts can allow employees to save up to $2,500 for emergencies, with contributions being made on an after-tax basis. This initiative aims to provide a safety net for employees, helping them avoid dipping into their retirement savings during financial emergencies.
5. Simple IRA Changes
Starting in 2025, individuals aged 60-63 with Simple IRAs will be allowed to make catch-up contributions of the greater of $5,000 or 150% of the age-50 catch-up limit, with cost-of-living adjustments beginning in 2026. This change is intended to help everyone achieve
In Conclusion
The upcoming changes in SECURE 2.0 represent a significant step forward in promoting retirement savings and financial security for American workers. Employers and employees alike should start preparing for these changes to maximize their retirement planning strategies. By staying informed and proactive, individuals can take full advantage of the benefits SECURE 2.0 has to offer.
As 2025 approaches, make sure to consult with your TPA or Retirement Advisor to navigate these new regulations effectively. Your future self will thank you!
Resources:
SECURE_Act_20_Retirement_Plan_Takeaways_White_Paper_SHRM_FINAL.pdf
401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000 | Internal Revenue Service