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The Secure 2.0 Act: Top 5 Changes for Millennials
Keeping up with legislative changes may help you make smart money decisions.
Saving for retirement is challenging for many Americans. Roughly 57 million American adults have nothing set aside for their retirement.1 And more are far behind on their savings goals if they want to retire by 65 and live a comfortable lifestyle.
The Secure 2.0 Act hopes to help correct some of these challenges by making it easier for people to save for retirement. While the Secure 2.0 Act was passed in 2022, changes are being rolled out over time. Let’s look at the changes coming in 2024 and what they mean for your retirement savings.
This information is not tax or investment advice. You should consult with a tax advisor and/or a qualified investment professional for advice specific to your particular circumstances.
Key Takeaways
The Secure 2.0 Act is rolling out updates over time, including several changes in 2024.
Changes for 2024 aim to help make it easier for working millennials and older generations to build their retirement savings more aggressively.
Updates for 2025 require employers to automatically enroll qualified employees in their 401(k) etirement plan and increase the catch-up contribution limits for workers closer to retirement.
Introduction to the Secure 2.0 Act
The Secure 2.0 Act was passed in 2022 and made significant changes to the Secure Act of 2019 based on updated retirement policies and guidance. The update raised the ages for required monthly distributions on IRAs and increased the catch-up contribution limits for people over age 50.
The update also attempted to make saving for retirement easier for people of all ages. For example, the 2.0 Act requires employers to automatically enroll employees in their 401(k) plans starting after December 31, 2024, alleviating the headache of setting the account up.2 It also added flexibility in how people could use their savings before retiring, making that money more accessible so saving is less daunting.3
Secure Act 2.0 Changes for 2024
Several provisions of the Secure 2.0 Act are rolling out in 2024. Check out the top changes you may see in 2024 and what that means for your finances and savings goals.4
Hardship Withdrawals from Retirement Accounts
Though it’s important to prioritize saving for retirement, the government understands that emergencies and tough financial situations could happen to anyone. And if you have savings of any kind, using those savings instead of taking out a new loan or using a credit card could help you avoid going into debt.
Under normal circumstances, withdrawing money from your retirement accounts before you reach 59 ½ years of age costs you a 10% early withdrawal penalty on what you take out.5
In 2024, the Secure 2.0 Act allows account holders to withdraw small sums for emergencies from their 401(k) or IRA accounts without that early withdrawal penalty. You’re able to take one distribution of up to $1,000 per year from your retirement account without having to pay the fee, provided you repay what you took out within three years of the withdrawal. The Act also allows for victims of domestic abuse who are under 59 ½ to withdraw up to $10,000 without penalty.6
Additionally, hardship withdrawals may come from any earnings on the account in addition to your contributions.
Roth 401(k) Employer Contributions
Traditional 401(k)s allow employees and employers to contribute to retirement savings on a pre-tax basis. While the money is in the account, it grows tax-free until you make a withdrawal. When you withdraw funds, you pay taxes on each distribution.
Prior to the Secure 2.0 Act, employees who had a Roth 401(k) account, which is funded with after-tax money, still received employer contributions on a pre-tax basis in a traditional 401(k) account. With the implementation of Secure 2.0, employers can choose to offer Roth matching, and if they do, employees with a Roth 401(k) can choose to have employer contributions made into their Roth account.7 The Roth contributions from the employer are included in the employee’s income and are subject to income taxes in the year the contributions are made. Consistent with the definition of Roth accounts, the contributions and earnings aren’t subject to taxes when withdrawn in retirement.8
While employer contributions to a Roth account are considered earned income and incur taxes now, the qualified distributions in retirement are tax-free in retirement.
Student Loan Matching
The average millennial has about $42,000 in student loan debt as of 2023.9 The Secure 2.0 Act updates aim to alleviate some of that financial strain by allowing employers to match student loan payments and place those funds in a retirement account.
Keep in mind that employers may only contribute funds up to the annual contribution limit for each employee.10 This is particularly helpful for millennials who may not be as established in their career and could have very little saved for retirement in their 30s.
This is still a relatively new concept for most employers and not every company offers a student loan match. Speak with your employer’s benefits specialist to see if you’re eligible.
Roll 529 into Roth IRA
529 accounts may help you save for your child’s education expenses, but when you child is young, you have no way of predicting if they will use the entirety of the fund on education costs, or that they will attend college at all. This leaves potentially thousands of dollars trapped in a plan that they can’t use without paying a penalty on the withdrawals they make.
The Act’s 2024 updates help deal with this limitation. You’re now able to roll a 529 account into a Roth IRA provided the 529 account is at least 15 years old. There are limits though. You can’t exceed annual IRA contribution limits when you roll funds over, and you’re only able to roll $35,000 in total into a Roth IRA.11
Additional Retirement Plan Changes
The update also provides changes for retirement plans for part-time employees. Employees who are working at least 500 hours per year for an employer three years in a row, starting January 1, 2021, are eligible to enroll in their company’s employer-sponsored 401(k). In 2025, that service requirement drops to two years, making it easier for people to qualify.12
The update also allows IRA-holders 50 and over to make catch-up contributions with maximum amounts proportionate to the rate of inflation for the year.13 As inflation rises, you may need more money to maintain your current standard of living. By indexing maximum catch-up contribution limits to inflation, you may be able to set more aside as needed to keep up with those economic changes.
Changes for 2025 and Beyond
The Secure 2.0 Act has additional regulations rolling out each year. Some changes coming in 2025 include14:
Automatic 401(k) enrollment: Employers must automatically enroll eligible employees for 401(k) plans starting after December 31, 2024.
Higher catch-up contributions: In 2025, individuals 60 to 63 years of age may make catch-up contributions of up to $10,000 per year to a workplace-sponsored retirement plan. Starting in 2024, the catch-up rate is adjusted based on inflation.15
Saver’s Tax Credit: Starting in 2027, the federal government will match retirement account contributions up to $2,000 for certain low-income earners instead of offering a tax credit.
Final Thoughts
The Secure 2.0 Act aims to help make it easier for workers of all ages to save for retirement, but for millennials, it has a huge impact. By helping make it easier to save for retirement, workers may be able to better prepare and start reaching their financial goals.
But saving for retirement shouldn’t be your only savings goal. You should also be saving for unexpected costs and emergencies. Not sure where to start? Learn how to build an emergency fund that helps work for your goals and budget.