Secure 2.0 Act set to reshape retirement savings with automatic 401k enrollment in 2025

KEARNEY, Neb. — Retirement can be a daunting prospect, especially for new workers. To this end, Congress passed several rounds of legislation to change the way people prepare for retirement, and some experts expect big differences in 2025.

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The Secure 2.0 Act of 2022 has been rolling out differences to retirements plans like 401(k)s and IRAs for the purpose of expanding coverage and increasing savings. According to the U.S. Bureau of Labor Statistics, retirees spent an average of almost $55,000 a year in 2022.

“It’s a big change for a lot of people to go from working every day to not,” said Oldfather investment advisor representative Tristan Crook. “It’s a big lifestyle change and some costs with that kind of change as well.”

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One change is the automatic enrollment into a 401(k). For new plans from 2023 onward, employers will be required to automatically enroll new employees starting with a 3% contribution, and then automatically bump that amount up per year up to 10%. They hope this will help remind people to save for retirement. According to the Bureau of Labor Statistics, while 70% of private workers had access to a retirement plan, only 53% were participating.

“If someone’s not actively pursuing you to get it set up, it’s kind of easy to forget about,” said Crook.

Another change is for part time workers. Many retirement plans required employees to work 500 hours in three years to be allowed to participate in a retirement plan. In 2025, for plans established after New Years Day, the requirement will drop to only two years, allowing them to start saving sooner.

“It used to be they were required to work so many hours over three years, now it’s two years,” said Crook.

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Also, there will be changes to catch up contributions, additions that people 50 and older can make to their IRAs or 401(k)s. In 2025, existing IRA caps will be adjusted for inflation, and allow up to $10,000 for workers 60-63.

“If you’re still working from 60-63, you get an even higher catch up contribution to get kind of gung-ho into retirement savings before you decide to retire,” said Crook.

Additional changes include raising the age for taking required minimum distributions from 72 to 73, extra tax credits for small businesses and an increased database for beneficiaries to find savings from previous administrators. Looking ahead to the new year, experts say that people need to look at the changes and decide if they align with their retirement goals, and opt out or choose a path that works best for them.

“There’s always gonna be the people saying it’s gonna be up, there’s going to be people saying the sky is falling and things are crashing,” said Crook. “So I think at the end of the day there’s no crystal ball as to what’s going to happen, you just need to make sure your money is allocated in a way that helps you sleep at night and aligns with your goals.”