Imagine waking up to find a portion of your paycheck shaved off without your consent, all because you missed an email about automatic enrollment in your company’s 401(k) plan. That could soon be a reality for many workers as companies gear up to roll out new retirement plan changes mandated by the SECURE 2.0 Act.
Here’s what you need to know about these upcoming changes to your 401(k) retirement plan:
- Automatic Enrollment: Starting from January 1, 2025, most companies will be required to automatically enroll their employees in the 401(k) plan. This means that you could be signed up for the retirement account even if you previously opted out. Your contribution amount will be automatically set to 3% through 10% of your paycheck unless you choose to opt out or adjust the amount.
- Will I be required to sign up?: While you won’t be forced to sign up for a retirement plan, you may need to opt out if you wish to stay out of it. The automatic enrollment concept isn’t new, as some employers have had the option since 2006. However, now most employers will be required to enroll their employees. You’ll receive a notification if you’re automatically enrolled and can opt out at that time.
- Automatic Escalation: In addition to automatic enrollment, the SECURE 2.0 Act introduces automatic escalation. This means that if you’re enrolled in a 401(k) plan, your contributions will automatically increase every year, typically by 1%. You have the flexibility to adjust this percentage according to your preferences.
- Employer Requirements: Whether your 401(k) will be impacted by these changes depends on your employer. The mandatory components of SECURE 2.0 apply to retirement plans established after December 29, 2022. Employers may choose to automatically enroll newly eligible employees or everyone on the payroll.
- Why these changes: The aim behind automatic enrollment and escalation is to simplify retirement savings for employees. By automating the process, individuals are more likely to save for retirement consistently, even if they may have forgotten to sign up in the past.
- Opting Out: If you’re automatically enrolled in a 401(k), you can choose to opt out. You also have the flexibility to adjust the contribution amount and opt out of the automatic escalation feature if desired.
In summary, with these changes set to go live in 2025, it’s essential to stay informed about how they may impact your 401(k) retirement plan. Be proactive in understanding and managing your contributions to ensure a secure financial future.
Leave feedback about this