SECURE 2.0 Act: What the New 401(k) Rules Mean for You in 2025

The start of 2025 brought major updates to 401(k) plans, thanks to the SECURE 2.0 Act. These changes are designed to enhance retirement readiness and broaden access to employer-sponsored retirement plans. Whether you’re approaching retirement age or juggling part-time work, here’s what you need to know to make the most of these provisions.

Super Catch-Up Contributions for Ages 60-63

Starting this year, workers aged 60, 61, 62, or 63 by the end of the tax year can make a “super catch-up” contribution to their 401(k) or SIMPLE IRA. This allows eligible participants to contribute up to $11,250 annually, 150% of the regular $7,500 catch-up contribution limit for those over age 50.

However, it’s important to note that this super catch-up replaces the regular age 50 catch-up limit—it doesn’t stack on top of it. Once participants turn 64, they return to the regular catch-up contribution limits.

Automatic Enrollment in New Retirement Plans

Automatic enrollment is now required for most 401(k) and 403(b) plans established after December 29, 2022 (the date SECURE 2.0 was enacted). Under this rule:

• Covered employees will be required to make elective deferrals unless they opt-out.
• The employer can set the deferral rate for those who don’t opt out, as long as the rate is at least 3% of pay and no more than 10% of pay.
• The employer must increase the rate by 1% annually until it reaches at least 10% and no more than 15% of pay.

Some exceptions apply, such as for small businesses with 10 or fewer employees, new employers (in business for less than three years), church-sponsored plans, governmental plans, or SIMPLE plans.

This change aims to increase retirement participation rates, especially for younger and lower-income workers who may otherwise delay saving.

Part-Time Employee Participation

Before the SECURE Act, plans could exclude part-time employees if they did not work at least 1,000 hours of service in a 12-month period or were under age 21. The SECURE Act modified this by requiring plans to permit an employee who has worked at least 500 hours in three consecutive 12-month periods (but excluding periods before 2021), and who is age 21 or older by the end of the three-year period.

In SECURE 2.0, Congress kept the age-21 requirement but shortened the consecutive 12-month periods from three to two (but excluding periods before 2023).

For example, a part-time worker hired in 2023 who works at least 500 hours per year will now be eligible to start contributing to their employer’s 401(k) on January 1, 2025.

Besides 401(k)s, the new SECURE 2.0 rule also covers part-timers under ERISA-covered 403(b) plans, starting January 1, 2025.

While this provision applies to elective deferrals only (not employer contributions), it marks a significant step in expanding retirement plan access to part-time workers.

A Few Key Reminders

• Catch-Up Contributions and High Earners: Starting in 2026, employees earning more than $145,000 annually will need to make their catch-up contributions to Roth accounts (after-tax).
• No Double Dipping: The new $11,250 super catch-up is not in addition to the regular $7,500 catch-up—it replaces it for eligible ages.

Here’s a handy chart summarizing the catch-up limits by age:

Big News for Social Security Beneficiaries

On January 5, 2024, President Biden signed into law the Social Security Fairness Act of 2023 (H.R. 82), which repeals two long-standing federal laws: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). This legislation is a game-changer for millions of retired firefighters, police officers, and teachers who receive non-covered public pensions.

The law means:

• Higher Monthly Benefits: Scrapping the WEP will result in an average monthly increase of $360 per person, while eliminating the GPO will add an average of $700 for those receiving benefits based on living spouses.
• Retroactive Lump Sums: Beneficiaries will receive lump-sum payments retroactive to December 2023, addressing the shortfall from 2024.

The Social Security Administration (SSA) is working to implement the act, and beneficiaries don’t need to take any immediate action other than ensuring the SSA has their correct contact and banking information. Most updates can be handled online via My Social Security Account.

What This Means for You

These updates provide an excellent opportunity to boost your retirement savings, especially if you’re in your peak earning years or a part-time worker. If you’re unsure how to maximize these benefits or want to align your retirement plan with these changes, now is the perfect time to consult with a financial advisor.

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