The Ultimate Guide to SECURE Act 2.0

Shortly after the bipartisan SECURE Act was signed into law in December 2019, legislators began working on follow-up bills to further enhance participation in retirement plans. The result of these efforts is SECURE 2.0, which contains 90+ provisions aimed at further encouraging retirement savings. As a reminder, SECURE stands for Setting Every Community Up for Retirement Enhancement, essentially a clunky acronym for legislative efforts to improve retirement savings opportunities.

A Sectional Approach

In an effort to make our Ultimate Guide to Secure 2.0 as useful and effective as possible, we have divided the article into three distinct sections. The various provisions of the new law are divided into three categories which are loosely aligned with the relative frequency with which an employer would address them.

The idea is that you can read the sections that are relevant to you, depending on how deep you want to go into the material.

  • The Everyone Section: Provisions that essentially all benefits professionals will want to understand.

  • The Retirement Professional Section: Provisions reflecting the more detailed elements of the new law that people involved in retirement plans will need to know, but general benefits people can get away with not knowing.

  • The Nerd Section: Provisions that are more nuanced (and sometimes obscure). For all you retirement nerds out there . . . this section is for you!

This summary focuses on the provisions that impact employer-sponsored retirement plans only. Provisions that do not directly impact 401(k) plans have been omitted.

Effective Dates

Most of the provisions of the law do not become effective until 2024 or later, so employers and retirement plan providers will have some time to work through implementation issues. Because the effective dates differ, this guide identifies the specific effective date for each provision.

Legislative References

For the Super Nerds, a summary by section of the actual legislation can be found here: SECURE 2.0. Code sections for the actual legislation are also included at the end of each provision for reference.


The Everyone Section

Mandatory Auto-Enrollment for New Plans

Employers establishing new plans are required to auto-enroll all eligible new hires into a 401(k) plan at a pre-tax rate of at least 3% of pay with an auto-escalation increase of 1% per year until the salary reduction reaches at least 10% (but no more than 15%). Employees have the option to opt-out or select a different contribution level, but the no-action default is required to be 3% pre-tax.

Existing plans are grandfathered. We expect that employers will amend existing plans to conform to the auto-enrollment default over time.

Certain employers are exempt from mandatory enrollment for new plans. These include small businesses with 10 or fewer employees, employers that have been in business for less than three years, churches, and governments.

This provision is effective for new plans starting after December 31, 2024. (Section 101)

Matching Contributions Can Now be Roth

Current law does not permit employer matching or nonelective contributions (NECs) to be made on a Roth basis (they must be made on a pre-tax basis). SECURE 2.0 allows employees to elect to have employer-matching contributions and/or NECs made on a Roth basis. Matching and NECs designated as Roth contributions are not excludable from the employee’s income and must be 100% vested when made.

This provision is effective for contributions made after enactment (2023 and beyond). However, it is expected that actual implementation will be delayed as it will take recordkeepers some time to develop the complex infrastructure required to support this flexibility. (Section 604)

Catch-up Contributions Enhanced

Current law allows for employees over age 50 to make catch-up contributions to increase the growth of their plans as they near retirement. The current catch-up contribution limit is $6,500 in 2022 ($7,500 in 2023). SECURE 2.0 increases the catch-up contribution amount as follows:

  • Age 50-59: No change ($6,500 in 2022, $7,500 in 2023)
  • Age 60-63: $10,000 or 150% of the regular catch-up amount for 2024, indexed for inflation

The increased limit applies for individuals who attain age 60, 61, 62, or 63 in that tax year.

This provision is effective for taxable years beginning after December 31, 2024. (Section 109)

Required Roth Catchup Contributions for High-Income Earners

SECURE 2.0 creates a requirement that catchup contributions made by employees whose wages exceed $145,000 (indexed for inflation) must be made on a Roth basis (after tax). This provision is mandatory for any plan that makes catch-up contributions available. Guidance will be necessary to clarify how this provision will apply to plans that allow catch-up contributions but which do not currently include a Roth deferral option. On its face, it would appear that HCEs would not be able to make catch-up contributions if a Roth option was not added to the plan.

This is one of the primary revenue raisers of the SECURE 2.0 legislation. The funds garnered from converting these contributions to after-tax help to balance the other provisions of the bill, which generate additional government spending.

This provision is effective for tax years beginning after December 31, 2023. (Section 603)

Lost and Found Database

One of the challenges employers face is not having current contact information for former retirement plan participants after they leave the company. Similarly, individuals often can’t locate or don’t know where to look to find old accounts left in former employer plans.  

The new law directs the DOL to create a nationwide, online, searchable “Lost and Found” database that maintains information on benefits owed to missing, lost, or non-responsive participants and beneficiaries in retirement plans. The goal of this provision is to create a tool to assist plan participants and beneficiaries in locating monies that may have been left in accounts under a former employer plan. Note that this provision comes with obvious reporting requirements for employers where they will need to report such information to the DOL so that it can be included in the database. The specifics of these reporting requirements have yet to be spelled out.

This provision requires the creation of the Lost and Found database no later than two years after the date of enactment of SECURE 2.0. (Section 303)

Paper Notification Requirements

SECURE 2.0 brings modifications to the retirement plan benefit statements requirement. The new rules generally require that retirement plans provide:

  • Defined Contribution Plans: at least one paper statement each calendar year
  • Defined Benefit Plans: at least one paper statement every three years

The other three quarterly statements required under ERISA are not subject to this rule (meaning they can be provided electronically).

Importantly, exceptions are allowed for plans that follow the DOL’s electronic delivery rules or for participants or beneficiaries who have opted into e-delivery according to the 2002 safe harbor.

This provision is effective for plan years beginning after December 31, 2025. (Section 338)

Emergency Savings Accounts (ESAs)

This provision introduces a new element to retirement plan accounts. It permits plan sponsors to amend their plans to allow for emergency savings accounts (ESAs). These accounts have been dubbed “side-car” accounts as they sit next to a regular 401(k) account under a retirement plan. Employee ESA contributions must be made on a Roth (post-tax) basis, and they must be eligible for matching contributions at the same matching rate established under the plan for retirement plan elective deferrals. Matching contributions are not made to the emergency savings account. Rather, they are made to the participant’s 401(k) account. Employers may auto-enroll participants into ESAs at a rate of up to 3% of compensation. Contributions are capped at $2,500 (indexed for inflation after 2024) or a lower amount determined by the plan sponsor. Only non-highly compensated employees are eligible for ESAs.

Employees can withdraw from the ESA on a penalty-free basis at any time. In addition, they must be able to take up to four withdrawals on a no-fee basis at a frequency of at least once per month. Minimum contribution or balance requirements are prohibited. At separation, employees may take their ESAs as cash or roll it onto their Roth 401(k) or IRA (if they have one). Participants must be allowed to invest ESA funds in cash, interest-bearing deposit accounts, and principal preservation accounts. There is also a fiduciary safe harbor for automatic enrollment. Lastly, this provision includes the preemption of state anti-garnishment laws.

This provision is effective for distributions made after December 31, 2023. However, the infrastructure required to implement this provision will be incredibly complex for recordkeepers to develop. Therefore, 2024 is probably optimistic. (Section 127)

Emergency Withdrawals

SECURE 2.0 changes the law to allow one withdrawal of up to $1,000 per year for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Such withdrawals are not subject to the federal 10% penalty for early withdrawal (for individuals under age 59½). The withdrawal may be repaid within three years. Further withdrawals are limited within the three-year repayment period if the first withdrawal has not been repaid.

This provision is effective for distributions made after December 31, 2023. (Section 115)

Increase in Mandatory Cash-Out Threshold

Under current law, employers may immediately distribute a former employees’ retirement plan account and transfer it into an IRA if their plan balance does not exceed $5,000. This can be done without the participant’s consent or involvement. The SECURE 2.0 law increases the involuntary cash-out limit to $7,000.

The law also paves the way for retirement plans and recordkeepers to offer automatic portability provisions for amounts transferred to a default IRA. These automatic portability provisions are designed to enable default IRA balances to be automatically transferred into the retirement plan of an employee's new employer without the employee needing to take any action.

This provision is effective for distributions after December 31, 2023. (Section 304)

Employee Self-Certification for Hardship Distribution

Current regulations provide that hardship distributions may be made due to an immediate and heavy financial need or an unforeseeable emergency. These needs must be individually evaluated using facts and circumstances, but certain events can be deemed hardship events under a safe harbor. In general, current hardship rules require that employees must submit records documenting a safe harbor event that constitutes a hardship, specifically that the employee has insufficient cash or liquid assets reasonably available to satisfy the hardship need.

SECURE 2.0 allows a plan administrator to rely on an employee’s self-certification that an event qualifies as a hardship for the purposes of taking a hardship withdrawal from a 401(k) plan. The administrator can also rely on the employee’s self-certification that the distribution is not in excess of the amount required to satisfy the financial need and that the employee has no alternative means reasonably available to satisfy the financial need. This is a welcome relief from an otherwise burdensome administrative process for employers and a natural extension of the self-certification procedures that have been authorized as a result of COVID-19.

This provision is effective for plan years beginning after the date of enactment. (Section 312)


The Retirement Professional Section

De Minimus Financial Incentives Okay

Under current law, employees are prohibited from receiving incentives for participating in a retirement plan (other than employer matching contributions). The new law allows participants to receive de minimis financial incentives (not paid for with plan assets) for contributing to a 401(k) plan. These incentives could be items such as gift cards for small amounts. No specific guidance was provided in terms of what constitutes “de minimis financial incentive.” Presumably, the IRS will provide guidance to employers on this matter.

This provision is effective for plan years beginning after the date of enactment. (Section 113)

Top Heavy Testing

Generally, for defined contribution plans, the top-heavy minimum contribution is 3% of the participant’s compensation. A plan is top-heavy if the aggregate account balance for key employees exceeds 60% of the aggregate account balance for non-key employees. If a plan is top-heavy, the 3% minimum contribution must be provided for non-key employees, and, in some cases, faster vesting is required. This can be very costly for small employers who more frequently struggle with having top-heavy plans.

Other 401(k) plan discrimination tests allow employers to test otherwise excludable employees (under age 21 and have less than one year of service) separately. This allows employers to permit excludable employees to defer earlier and to know that doing so won’t compromise passing discrimination tests. This separate testing has never been allowed for the top-heavy test.

SECURE 2.0 allows a top-heavy plan that covers excludable employees to perform top-heavy testing for excludable and non-excludable employees separately. This change removes the financial incentive to exclude employees from a 401(k) plan and allows workers who might otherwise be excluded access to save for retirement.

This provision is effective for plan years beginning after December 31, 2023. (Section 310)

Part-Time Worker Eligibility Enhancement

The law reduces the maximum years of service (from three years to two years) required for a part-time employee to be eligible for a 401(k) plan. The 500 hours per year threshold remains. Pre-2021 service is disregarded for employer contribution vesting purposes, and pre-2023 service is disregarded for eligibility and vesting purposes under this new provision.

This provision is generally effective for plan years beginning after December 31, 2024. The clarification that pre-2021 service may be disregarded for vesting purposes is effective as if included in the 2019 SECURE Act, so effective for plan years beginning after December 31, 2020. (Section 125)

Student Loan Matching

The SECURE 2.0 legislation authorizes employers to contribute to an employee’s retirement plan based on an employee’s student loan payments. This provision is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt and thus are missing out on available matching contributions under a retirement plan.

Employer student loan match contributions would be treated as a regular matching contribution for discrimination testing purposes, and employers also are permitted to test employees receiving student loan matching separately. Employees can also designate student loan matching contributions to be made as Roth contributions.

The arrangement of matching student loan payments is not new but has only been available to those employers who have sought and received an IRS ruling for this type of contribution. This provision expands the applicability to all employers and eliminates questions about both the legality of the practice and how it impacts discrimination testing.

This provision is effective for plan years beginning after December 31, 2023. (Section 110)

Unenrolled Participant Notifications Streamlined

Under current rules, employees who choose not to participate in an employer-sponsored plan (unenrolled participants) are required to receive numerous communications from the plan sponsor that are not applicable (since they didn’t enroll). SECURE 2.0 streamlines the requirements for plan sponsor notices to unenrolled participants to consist solely of an annual notice of eligibility to participate during the annual enrollment period (and providing any requested documentation to which they are otherwise entitled).

This provision is effective for plan years beginning after December 31, 2022. (Section 320)

Safe Harbor for Correcting Deferral Errors

The IRS has a process to allow plans to correct errors, including errors relating to missed deferrals under automatic enrollment or automatic escalation features. Currently, there is a safe harbor for correcting automatic enrollment failures, but it is set to expire on December 31, 2023.

SECURE 2.0 creates a safe harbor that assures a plan will not fail to be a qualified plan merely because of a corrected error. Following are the required elements of a correction under the new safe harbor:

  • Must be a reasonable administrative error made in implementing automatic enrollment, automatic escalation features, or by failing to offer an affirmative election due to the employee’s improper exclusion from the plan
  • Must be corrected within 9 ½ months of the end of the plan year in which the error occurred (or the date on which the employee notifies the plan sponsor of the error, if earlier)
  • Must be resolved favorably toward the participant and without discrimination toward similarly situated participants
  • Notice must be provided to the affected participant within 45 days of the date on which correct deferrals begin. 

This new safe harbor does not require a corrective contribution for missed deferrals. However, the plan sponsor must contribute any missed matching contributions, plus earnings, that would have been made if the error had not occurred.

This provision is effective for any errors occurring after December 31, 2023. (Section 350)

Plan Amendment Timing

Current law generally requires plan amendments to reflect legal changes to be made by the tax filing deadline for the employer’s taxable year in which the change in law occurs (including extensions). The IRS Code and ERISA provide that, in general, accrued benefits cannot be reduced by a plan amendment. This is designed to protect plan participants.

SECURE 2.0 allows plan amendments made pursuant to this law to be made by the end of the 2025 plan year as long as the plan operates in accordance with such amendments as of the effective date of a bill requirement or amendment. This provision also conforms the plan amendment dates under the SECURE Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 to the 2025 date.

This provision is effective upon enactment. (Section 501)


The Nerd Section

RMD Age Raised

Currently, taxpayers are required to start taking Required Minimum Distributions (RMD) from their retirement accounts at age 72. The intention behind this policy is to ensure that individuals spend their retirement savings during their lifetime and do not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.

SECURE 2.0 increased the age for RMDs as follows:

  • Effective January 1, 2023, the RMD age is raised to 73
  • Effective January 1, 2033, the RMD age is raised to 75.

Practically, this means that taxpayers who turn 72 in 2022 must take an RMD by April 1, 2023. Taxpayers who turn 72 in 2023 do not need to take an RMD until the following year, the year in which age 73 is reached.

This provision is effective for distributions made after December 31, 2022, for individuals who attain age 72 after that date. (Section 107)

RMD Penalty Lowered

Individuals who do not take an RMD are subject to an excise tax penalty. Under prior law, the penalty was a 50% excise tax. SECURE 2.0 reduces that penalty to 25%. In addition, the penalty can be further reduced to 10% if the individual corrects the shortfall within a two-year correction window. 

This provision is effective for taxable years beginning after the date of enactment. (Section 302)

Updated Performance Benchmarks for Asset Allocation Funds

Existing participant disclosure regulations require that each investment alternative’s historical performance be compared to an appropriate broad-based securities market index. However, the rule does not adequately address increasingly popular investments like target date funds that include a mix of asset classes.

SECURE 2.0 requires the DOL to modify existing regulation so that an investment that uses a mix of asset classes can be benchmarked against a blend of broad-based securities market indices, provided:

  • The index blend reasonably matches the fund’s asset allocation over time
  • The index blend is reset at least once a year
  • The underlying indices are appropriate for the investment’s component asset classes and otherwise meet the rule’s conditions for index benchmarks.

This change in the disclosure rule allows better comparisons and aids participant decision-making. These changes are permissive for plan administrators, not mandatory. The DOL is directed to update the regulations no later than two years after enactment of this Act.

This provision is effective upon enactment. (Section 318)

529 Plan Rollovers to IRA

Section 529 qualified tuition programs permit contributions to tax-advantaged accounts that can be invested and used to pay for the qualified education expenses of a designated beneficiary. There have long been concerns about leftover funds being “trapped” in 529 accounts, with the only option being to take a non-qualified withdrawal and pay the penalty.

SECURE 2.0 provides new IRA rollover flexibility for assets maintained in a 529 account. To qualify, assets must have been maintained in a 529 account for a designated beneficiary for 15 years. After that time, unspent assets may be rolled over on a tax-free basis to a Roth IRA in the name of the beneficiary. Permitted rollovers are limited to:

  • The aggregate amount of contributions to the account (and earnings thereon) before the 5-year period ending on the date of the rollover.
  • A lifetime limit of $35,000.

The rollover is treated as a contribution towards the annual Roth IRA contribution limit. In addition, the Roth IRA owner must have includible compensation at least equal to the amount of the rollover.

This provision is effective for distributions after December 31, 2023. (Section 126)

Distributions for Long-Term Care Premiums

The new law permits retirement plans to make distributions for certain long-term care insurance contracts. The maximum amount per year that can be distributed is the lowest of:

  • The amount paid by or assessed to the employee during the year for long-term care insurance
  • 10% of the employee’s vested accrued benefit in the plan
  • $2,500 (indexed for inflation beginning in 2025).

Distributions from plans would be exempt from the federal 10% penalty on early distributions if used to pay premiums for qualified long-term care insurance.

This provision is effective beginning with distributions three years after the date of enactment. (Section 334)

Penalty-Free Withdrawal in Case of Domestic Abuse

The new law permits plans to allow penalty-free withdrawals in the case of domestic abuse. Participants may self-certify that they have experienced domestic abuse within the past year to be eligible to withdraw a portion of their retirement plan account without an early withdrawal penalty. The maximum withdrawal is limited to the lesser of:

  • $10,000 (indexed)
  • 50% of the value of the employee’s vested account under the plan.

Participants have the opportunity to repay the withdrawn amount over a 3-year period. To the extent repayment is made, the participant will receive a refund of taxes paid on the distributed funds.

This provision is effective for distributions made after December 31, 2023. (Section 314)

Savers Match for Lower-Income Individuals

In a change to the existing Saver’s Credit program, the new Saver’s Match program provides that lower-income retirement savers will be eligible to receive a government-funded matching contribution to their individual retirement account (IRA) or employer-sponsored retirement plan. Contributions are matched at 50% up to $2,000 per individual. Matching contributions are phased out as income increases, between $41,000 and $71,000 (for joint filers).

This provision is effective for tax years beginning after 2026. (Section 103)

Administration Credit for New Plans

Existing law provides for an employer credit for administrative costs incurred when setting up a new 401(k) plan. The credit is currently available for small employers with fewer than 100 employees and consists of a three-year start-up credit of up to 50% of administrative costs, with a maximum annual cap of $5,000.

SECURE 2.0 increases the credit to 100% of qualified start-up costs for employers. It also provides for an additional tax credit for five years of a set percentage of the amount contributed by the employer for employees up to a per-employee cap of $1,000. The tax credit percentage is 100% for the year the plan is established and year two, 75% for year three, 50% for year four, 25% for year five, and 0% thereafter. Contributions to employees with compensation in excess of $100,000 (indexed) are excluded.

The credit applies to employers with up to 50 employees (this reflects a phase-out for employers with between 51 and 100 employees). The practical effect of this provision is that small employers may be able to implement a retirement plan on a near-fully-subsidized basis.

This provision is effective for tax years beginning after December 31, 2022. (Section 102)

Rollover Simplification Forthcoming

The new law requires the Treasury to simplify and standardize the rollover process and issue sample forms to facilitate and expedite processing no later than January 1, 2025. The focus of the simplification effort is rollovers of eligible distributions from employer-sponsored retirement plans to another such plan or IRA.

This provision is effective upon enactment. (Section 324)

Repayment of Birth/Adoption Distributions

Current law does not limit the period during which a qualified birth or adoption distribution (QBAD) may be repaid. The distributions may be repaid at any time and are treated as rollovers. This created a problem for anyone who repays such a distribution after three years because the ability to amend a tax return and secure a tax refund is limited after that period.

SECURE 2.0 requires qualified birth or adoption distributions to be recontributed within three years of the distribution to qualify as a rollover contribution. This aligns with a similar rule for disaster relief repayments.

This provision is effective for distributions made after the date of the enactment and retroactively to the 3-year period beginning on the day after the distribution was received. (Section 311)

Disaster Distribution Rules Made Permanent

In recent years, Congress has eased plan distribution and loan rules in the case of certain federal disasters. SECURE 2.0 establishes permanent rules for governing plan distributions and loans in cases of qualified federally declared disasters. This means Congress no longer needs to pass special relief for each disaster. The following are key elements:

  • Up to $22,000 may be distributed to a participant per disaster
  • The distribution amount is exempt from the federal 10% early withdrawal fee (any state penalty would still apply)
  • Inclusion in gross income may be spread over a 3-year period
  • Amounts may be recontributed to a plan or account during the 3-year period beginning on the day after the date of the distribution
  • Allows certain home purchase distributions to be recontributed to a plan or account if those funds were to be used to purchase a home in a disaster area and were not so used because of the disaster
  • Increases the maximum loan amount for qualified individuals experiencing a qualified disaster to $100,000 (or 100% of the participant’s account balance)
  • Allows for a one-year extension of any loan repayment period.

This provision is effective for disasters occurring on or after January 26, 2021. (Section 331)

Roth Plan RMD Distributions

Under current law, RMDs are not required to begin prior to the death of the owner of the Roth IRA. By contrast, pre-death RMDs are required in the case of Roth monies in an employer 401(k) plan. SECURE 2.0 extends the pre-death RMD exemption to Roth amounts in 401(k) plans.

This provision is effective generally for taxable years beginning after December 31, 2023. However, it does not apply to distributions required before January 1, 2024. (Section 325)

No Penalty Terminal Illness Distributions

Current law imposes a 10% tax penalty on early distributions from tax-preferred retirement accounts unless certain exceptions apply, but terminal illness is not one of them. SECURE 2.0 creates an exception to the 10% early withdrawal penalty for distributions to individuals whose physician certifies that they have a terminal illness. Terminal illness is defined as an illness or condition that is reasonably expected to result in death in 84 months or less. Note that any state withdrawal penalties would still apply.

This provision is effective upon enactment. (Section 326)

Starter Plans

The law creates two new “starter plan” designs for employers that do not currently sponsor a retirement plan:

  • Starter 401(k) Plan: Deferral-only arrangement
  • Safe Harbor 403(b) Plan: Safe harbor plan

These new “starter plans” are structured as simple, deferral-only plans. The plans would generally require that all employees be enrolled in the plan with a deferral rate of 3% to 15% of compensation. The limit on annual deferrals is $6,000 (in 2022), with an additional $1,000 catch-up beginning at age 50 (both limits indexed for inflation). No employer contributions would be required.

This provision is effective for plan years beginning after December 31, 2023. (Section 121)



Vita Planning Group is a registered investment adviser. The information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.