Is SECURE Act 2.0 Really a Big Deal?
This post was last updated on January 16, 2025, to reflect all updated information and best serve your needs.
SECURE 2.0 didn’t cause any real major changes, but collectively, all the small changes have a significant impact. Put a different way, SECURE 2.0 probably won’t derail or save your retirement, but you certainly need to update your financial plan.
Many important dates shifted, Roth options have gotten better, and there are several small but useful provisions which affect only a few people. We won’t cover all the provisions in this article, but we’ll touch on some of the SECURE 2.0 highlights and changes.
Table of Contents
Changes to Retirement Account Contributions
SECURE 2.0 ushered in several beneficial changes for people saving for retirement. Some changes affect how much you can contribute to your retirement accounts. Others change the ways which you can save for retirement.
Indexed IRA Catch-up Contributions
Section 108 of SECURE Act 2.0 added additional rising (indexing) IRA catch-up contribution limits each year which will now adjust for inflation thereafter. These new catch-up contribution limits started in 2024. This is a helpful change if you’ve been wanting to start putting more into your IRA.
Higher Catch-up Contributions
In addition to indexing IRA contributions, there are improvements to catch-up contribution limits for other retirement accounts as well. Starting in 2025, catch-up contribution limits for employer sponsored plans increased.
Normal catch up contributions for qualified accounts like a 401k are normally limited to an additional $7,500 per year for age 50 and over, but there's a special provision for ages 60-63. The catch-up contributions for a 401k is now $11,250 for people aged 61 to 63 and then indexed for inflation thereafter.
Overall, these increased limits should be helpful to folks doing their final preparations for retirement.
Starter 401(k) Introduction
SECURE 2.0 created the option for a Starter 401(k). The Starter 401k is similar to a SIMPLE IRA, but has lower contribution limits and less rules attached to it.
The plan “generally” requires all employees to be enrolled and have a default contribution rate of 3% to 15%. The annual deferral (contribution) limit was set to be the same as the IRA limit ($7,000 for 2025).
Improvements for Roth Accounts
One of the biggest winners from SECURE 2.0 was Roth accounts. In addition to the indexed catch-up contributions for Roth IRAs mentioned earlier, other key benefits were added. Some of these changes took effect immediately, but some we won’t see for some time. You should still start planning now.
Allows for Roth SIMPLE and SEP IRAs
Starting in 2023, SECURE 2.0 added the ability to contribute to a SIMPLE or SEP IRA as a Roth contribution. This could be a huge benefit to small business owners. Most notably, the ability to contribute to a “Roth SEP” could significantly improve the ability for some to increase their Roth contributions.
The ability to contribute to a SEP as an employee or as the employer is possible. Keep in mind, Roth contributions are after tax and can’t be deducted by the employee. This isn’t any different than other Roth options previously available.
The same goes for a SIMPLE IRA. The higher limit for a SIMPLE versus a Roth IRA makes it a great way for some small businesses to expand Roth offerings.
Employer Match into Roth Accounts
Another exciting possibility is the ability for employers to contribute matching contributions into Roth accounts. Previously, all employer matching contributions had to be in a pre-tax or “traditional” account. Roth matching contributions should still be deductible by employers.
Although the change takes place immediately, this is an option – not a mandate. Just because employers can contribute to a Roth instead of traditional doesn’t mean they will. It can take time (and money) to get changes to employer retirement plans implemented.
529 Rollovers to Roth Accounts
Out of all the Roth IRA enhancements, the ability to convert a 529 account to a Roth IRA may have the most extra rules around it. We feel this is a very useful tool for college savings and could also be (marginally) helpful in estate planning as well.
The basic idea is you can contribute to a 529 account and then convert it to a Roth IRA later. This would enable repurposing unused 529 funds into a Roth IRA for the named beneficiary. This helps prevent money going unused or losing tax benefits if the 529 beneficiary doesn’t go to college.
There's a lifetime limit of $35,000 for rolling 529s into a Roth IRA. Also, these rollovers are subject to the Roth IRA annual contribution limits. The 529 also needs to be open and in the beneficiary's name for at least 15 years prior to the rollover.
This change is good for families wanting to save for college but are afraid the money will go unused or be penalized upon withdrawal. Also, this could be a creative way for parents and grandparents to help set their heirs up for their own retirement success down the road.
We could see a lot of utility with this provision, but we’ll have to see how this functions when it comes time to do it. Financial institutions still need to establish how they’ll track and transfer all these 529s.
RMD Changes
If you have retirement accounts such as a 401k or traditional IRA, required minimum distributions (RMDs) could be a concern. Fortunately, SECURE 2.0 made RMDs a little less concerning.
Required Minimum Distribution (RMD) Age Increased to 73 (Age 75 in 2033)
One of the immediate changes was the increase of the RMD age to 73 (previously age 72). This means anyone who turned age 73 on January 1, 2023 or later didn’t have to take their first RMD until April 1st of 2024.
There’s a part two for the age increase though. Starting January 1, 2033, the age for RMDs increases to 75. Things could still change in ten years. Point in case, RMDs age limits changed twice in the four years before SECURE 2.0 was passed.
RMD Penalties Lowered
Another provision to lessen the sting of RMDs is the decrease of the penalty to 25% or 10% if corrected in a “timely manner.” This is the penalty for any amounts not taken as a required distribution. This is a huge change from the previous excise tax rate of 50%. Still, 25% isn’t anything to brush off either.
Eliminates RMDs on Roth Accounts
The elimination of RMDs for all Roth accounts isn’t going to drastically change the way we save for retirement. However, this does eliminate a lot of unnecessary moving of money and paperwork. Being able to leave money in your Roth 401k or other Roth designated account eliminates the need to transfer to a Roth IRA just to avoid RMDs.
Granted, you might still want to transfer your Roth accounts to your Roth IRA to simplify things or increase your investment options. You just don’t have to move funds solely to avoid taking RMDs.
Lots of Change but Moderate Impact for Most
With over 92 separate sections within SECURE 2.0, there was a lot of change. However, the law was rolled out over time and piece by piece. This “softens” the impact, but definitely adds complexity to trying to keep track of all the changes.
Overall, most people nearing retirement aren’t going to significantly alter their overall retirement plans. There will certainly be many smaller tweaks and adjustments needed with the new rules. There were also a lot of other provisions we didn’t cover here. We highlighted some of the key changes and benefits.
All these changes are a lot to keep track of on your own. NextGen Wealth checks for changes relating to our clients. We’re tracking all the dates for SECURE 2.0 implementation and we’re helping to make sure everything runs smoothly with any changes in law.
This is why we work with people on a long-term basis. We’re never going to make you go it alone. Contact us today to see how we can help with your retirement journey.
This article was written by 
