Automatic enrollment, more generous catch-up amounts and emergency savings accounts are among nine big changes to your 401(k) in legislation dubbed Secure Act 2.0.

Congress published the final details of the bill Tuesday and is expected to pass it as part of the larger year-end omnibus bill in the next few days.

First, it would allow people 50 and older to contribute an extra $7,500 a year to their 401(k), up from the current $6,500. More significantly, it would create a new level for catch-up contributions for people 60-63, setting it at $11,250 beginning in 2025.

Secure Act 2.0, secondly, would also raise the age for required minimum distributions (RMDs) for 401(k) savers, permitting their money to remain invested in their workplace 401(k) for a few more years.

Before COVID, RMDs were 70-1/2. A 2019 bill raised that to 72, and Secure Act 2.0 would step that up to 73 in 2023 and 75 in 2033.

It would also make automatically enrolling participants a requirement for 401(k) and 403(b) plans, the latter used at schools and non-profits, starting in 2025. Between 3% and 10% of workers’ pay would be automatically invested in their retirement account. Legislators say this will boost 401(k) participation by minorities, The Wall Street Journal reports.

Fourth, the bill also makes it legally feasible for employers to offer workers, and in some cases automatically enroll them in, emergency savings plans of up to $2,500, inside of their 401(k) plans.

Employers could make these emergency workplace accounts rainy-day Roths, which would let people take their money out tax-free and avoid the 10% penalty levied on those younger than 59-1/2.

Help With Student Loans

Another popular feature of Secure 2.0 the fifth big proposed change, is permitting employers to tie their 401(k) matches to a worker’s qualified student loan payments. Even if the worker stops or has never contributed to their 401(k), an employer can give them a 401(k) match if that worker is busy paying down their student debt.

Six, the bill would also eliminate required distributions on Roth 401(k)s, starting in 2024.

The seventh big change is, it would give people in financial duress better access to their 401(k) money by permitting penalty-free withdrawals for the terminally ill, victims of domestic abuse and those needing to pay for long-term care insurance.

For low- and moderate-income workers, the government would restructure, and ostensibly simplify, a tax credit to put up to $1,000 annually into their retirement account of those eligible, starting in 2027. This credit is currently only available to those with an income tax liability.

Finally, ninth, it would expand the requirement for employers to offer retirement plans to part-time workers. The law currently requires employers to offer 401(k)s to those who have worked for them for three years and put in at least 500 hours of service a year. The new law would reduce that service time to two years, starting in 2025.

Widespread Praise

Retirement savings advocates widely applaud the measures, since half of American households are not on track to maintain their standard of living in retirement, according to the Boston College Center for Retirement Research.

Further, nearly half of working-age Americans are not offered a retirement plan by their employer, and even those who have a 401(k) or similar plan are not saving nearly enough. Financial planners typically recommend a retirement savings rate of at least 10%, and increasingly 15%, of income.

Secure 2.0 “will help increase savings, ensure greater access to workplace retirement plans, and provide more workers with an opportunity to receive a secure stream of income in retirement,” says Thasunda Brown Dickett, president and CEO of TIAA.

Rep. Ron Wyden, D-Oregon, chairman of the Senate Finance Committee, adds: “Americans deserve dignified retirements after decades of hard work, and our bill is an important step forward.”

Senate Majority Leader Chuck Schumer, D-New York, said the omnibus spending bill must be passed this week in order to avoid a government shutdown.

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