New 401(k) Rules: What US Workers Must Know Now (SECURE 2.0 Impact)
The **401(k)** remains the cornerstone of retirement savings for most American workers. However, due to recent legislative changes—most notably the **SECURE 2.0 Act**—the rules governing these accounts are evolving rapidly. Workers must be aware of these new provisions to maximize their savings potential and avoid costly penalties.
From automatic enrollment to Roth catch-up contributions, here are the critical new 401(k) rules that US workers must understand immediately.
1. The Rise of the Roth 401(k) (And Mandatory Catch-Up Contributions)
The biggest structural changes revolve around the Roth account:
- Roth Catch-Up Mandate: For high-income earners (those earning over \$145,000 in the prior year, indexed for inflation), all **catch-up contributions** (for workers age 50+) must now be made to a **Roth 401(k)** on an after-tax basis. This means the contributions lose their immediate tax deduction but grow tax-free and are withdrawn tax-free in retirement.
- Employer Match to Roth: In a major change, employers are now permitted to allow employees to receive their company matching contributions on a Roth basis. This means you pay tax on the match now, but the funds (including earnings) are tax-free forever. Check with your plan administrator if this option is available.
2. Increased and Indexed Contribution Limits
While the standard 401(k) contribution limit continues to be adjusted annually for inflation, new provisions are increasing the *catch-up* potential for older workers:
- Standard Limits: Always check the IRS site for the current year’s limit (e.g., \$[2025_401K_LIMIT] for 2025).
- Higher Catch-Up Limit (Ages 60-63): Workers who are ages 60, 61, 62, and 63 will now be eligible for an even higher catch-up contribution limit than the standard 50+ catch-up amount. This provides a crucial opportunity for late savers to boost their balances.
3. New Hardship and Emergency Withdrawal Rules
The new rules acknowledge that life happens and make it easier—and less costly—to access funds in emergencies:
- **Penalty-Free Emergency Withdrawals:** Some plans are now permitted to allow a single, penalty-free withdrawal of up to **\$1,000** per year for emergency expenses. The withdrawal is still taxable, but the 10% early withdrawal penalty is waived. You can repay the money within three years.
- **Disaster Relief:** If you live in a federally declared disaster area, you may be able to take a penalty-free withdrawal of up to \$22,000 and spread the income tax burden over three years.
4. Automatic Enrollment and Portability
To encourage greater participation, especially among younger workers:
- **Mandatory Automatic Enrollment:** While currently postponed for 2025, a key SECURE 2.0 provision mandates that most new 401(k) plans must automatically enroll eligible employees, starting with a contribution rate of at least 3% (up to 10%) and increasing by 1% annually until it reaches at least 10%. Workers must still opt out if they do not wish to participate.
- **Small Balance Auto-Portability:** This highly beneficial change allows plan sponsors to automatically transfer small balances (up to \$7,000) from a former employee’s retirement plan into an existing or new IRA, preventing small balances from getting lost or cashed out.
5. Delayed Required Minimum Distributions (RMDs)
The age at which workers must start taking money out of their traditional tax-deferred accounts continues to increase, allowing savings to grow for longer:
- The age for RMDs has moved from 70.5 to 73, and is scheduled to move again to 75 in 2033. This change primarily benefits those who don't need the money yet, reducing their immediate tax burden.
The landscape of retirement saving is becoming more flexible and inclusive under the new rules. US workers should immediately review their contribution elections, especially their Roth vs. Traditional mix, and consult their employer's plan administrator to ensure they are taking advantage of these beneficial new provisions.
Start your side hustle today with FinRise Pro USA!