Congress passes new retirement rules. What these 7 changes mean for you and your 401(k) | finance

New retirement rules will soon be in place that will make it easier for Americans to accumulate retirement savings — and make it cheaper to withdraw them — now that lawmakers have passed an omnibus spending package.

Collectively, the retirement savings provisions in that package are known as Secure 2.0.

“[Secure 2.0] will help increase savings, provide greater access to workplace retirement plans and give more workers the opportunity to receive a secure stream of income in retirement,” said Thasunda Brown Duckett, president and CEO of TIAA, one of the largest retirement services providers in the U.S. .

Here’s a look at seven provisions of Secure 2.0, based on an analysis by the Senate Finance Committee.

1. Request automatic enrollment in 401(k) plans

Most employers starting new workplace retirement savings plans will need to automatically enroll employees in the plan. (Currently, it is optional for employers to do so.) It will then be up to employees to actively opt out if they do not wish to participate.

This Secure 2.0 provision will require employers to set a default contribution rate of at least 3% but no more than 10% for an employee plus an automatic contribution escalation of 1% per year up to a maximum contribution rate of at least 10% but no more than 15%.

The provision will enter into force after December 31, 2024.

2. Allow employer contributions for student loan repayment

When you have to pay off student loan debt, it makes it harder to save for retirement. Secure 2.0 now allows employers to make matching contributions to an employee’s retirement plan based on their qualifying student loan payments. This would ensure that the employee builds retirement savings no matter what.

The provision will enter into force after December 31, 2023.

3. Increase the age for required minimum distributions

It used to be that once you turned 70 1/2, you had to start withdrawing the required minimum amount from your 401(k) or IRA each year. Then the age moved to 72 years. Under the Secure 2.0 package, it will move to 73 years starting in 2023 and then to 75 a decade later.

4. Help employees build and access emergency savings

Normally, if you tap your 401(k) before age 59 1/2, you not only have to pay taxes on that money but also pay a 10% early withdrawal penalty.

For employees deterred from saving money in a tax-deferred retirement plan because it would be too complicated and expensive for emergency access, Secure 2.0 can ease that fear: It will allow employees to withdraw up to $1,000 a year without an emergency penalty. While employees would still owe income tax on that withdrawal in the year it was made, they could get a refund of that tax if they repay the withdrawal within three years.

If they default on the withdrawal, they would have to wait until the three-year repayment period is over before they are allowed to make another emergency withdrawal.

The provision will enter into force after December 31, 2023.

5. Increase contribution limits for older workers

Currently, if you are 50 or older, you can contribute an additional $6,500 to your 401(k) on top of the $20,500 annual federal limit that is in effect this year.

Under the pension package, instead of $6,500, those aged 60, 61, 62 and 63 will be allowed to contribute $10,000 or 50% more than the regular compensation amount in 2025, whichever is greater.

The provision enters into force after December 31, 2024.

However, to pay for the cost of the retirement package, another provision, which will take effect a year early, will require anyone with compensation greater than $145,000 to “Rotify” their compensation contributions. So instead of making pre-tax contributions up to the catch-up limit, you can still contribute the same amount, but you’ll be taxed on it in the same year. Your contribution will then grow tax-free and can be withdrawn tax-free in retirement. But the federal government will receive tax revenue from the original upfront contribution.

6. Improve and simplify credit for savers

An underutilized federal match exists for lower-income people’s retirement contributions of up to $2,000 a year. The new package improves and simplifies the so-called saver’s loan so that more people can use it. Eligible filers (eg, married couples earning $71,000 or less) will receive a matching contribution from the federal government worth up to 50% of their savings, but not to exceed $1,000.

The provision enters into force after December 31, 2026.

7. Make it easier for part-time workers to save

Part-time workers must be allowed to participate in the workplace pension plan if they have three years of service and work at least 500 hours a year. The new package cuts that service time to two years.

The provision enters into force after December 31, 2024.


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