Saving for retirement is becoming a loftier aim by the day, and many Americans are entering that new stage of life with insufficient money to support expenditures and relying only on Social Security.
This is why Congress has made some significant reforms to the country’s retirement system, including various revisions to 401(k) programs. These modifications are intended to assist future retirees move more smoothly from their working lives to retirement.
The amendments come in the form of the “Secure 2.0″ Act, which is an update to the original article, with the majority of the changes taking effect in 2025.
Why is this update so important? According to a CNBC study of over 6,700 Americans conducted in early August, roughly four in ten American workers believe they are behind on retirement planning and savings, mostly owing to debt, insufficient income, or a late start.
This is a worrisome result, especially given that, according to Dave Stinnett, Vanguard’s head of strategic retirement advising, 401(k) plans are “the primary way most Americans prepare for retirement”. He also remarked that the accounts can perform “very, very well” when structured properly, which appears to be the fundamental issue: they are not adequately utilized.
Changes to 401(k)s
The first significant adjustment to be made is an increase in catch-up contributions. Employees can defer $23,500 into 401(k) plans in 2025, up from $23,000, and those over the age of 50 can contribute up to $7,500 in catch-up contributions in addition to the $23,500 limit.
Employees aged 60 to 63 will see an additional rise in catch-up contributions. As certified financial planner Jamie Bosse, senior adviser at CGN Advisors in Manhattan, Kansas, notes, this collective will contribute an additional $11,250, representing a 14% gain.
According to Vanguard’s 2024 How America Saves study, which is based on data from 1,500 qualifying plans and over 5 million participants, only 14% of employees maxed out 401(k) plans in 2023, and only an estimated 15% of workers made catch-up contributions in plans that allowed it during that time.
Unfortunately, this means that the gains, while lovely in theory, may not be as employed as experts would like for the general public.
Other changes by the Secure 2.0 Act
Another piece of good news for part-time workers is that they will now have better access to 401(k) and 403(b) plans. The change went into effect in 2024, when companies were required to provide plan access to part-time employees who worked at least 500 hours per year for three consecutive years. In 2025, the requirement is reduced to two consecutive years.
Stinnett applauds the proposal, calling it “a very good thing for long-term part-time workers who may have struggled to qualify for 401(k) eligibility.”
According to the US Bureau of Labor Statistics, just 56% of civilian workers who had access to workplace retirement benefits enrolled in these programs, which is a fairly low figure given that they are the primary source of income in retirement. This measure should potentially increase such numbers.
Another significant change is that the new 401(k) plans will have mandatory auto-enrollment. This will affect any new plans established after December 28, 2022. They must also include at least a 3% employee deferral rate.
Alicia Munnell, director of the Center for Retirement Research at Boston College, emphasized that “coverage is my thing.” It is critical that people have coverage wherever they go (particularly when they transition from full-time to part-time employment). It is clearly a positive move to take. additional people will join, which will result in additional savings.”
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