The new year brings many changes for workers in the U.S. contributing to a retirement plan.
The largest one of all is an increase in the contribution limit for employees who participate in 401(k), 403(b) and most 457 plans as well as the Thrift Savings Plan. Workers can now contribute an extra $2,000 a year, to a new limit of $22,500.
Those with individual retirement accounts (or IRAs) will be able to raise their contributions to $6,500 a year.
What The Secure 2.0 Act Brings For Retirement
However, a $1.3 trillion spending bill approved by Congress in late December also included several provisions affecting workers with retirement accounts.
New RMD Ages: The new age by which Americans start having required minimum distributions will no longer be 72. Starting 2023, it will be 73 and will jump to 75 come 2033.
The required minimum distributions rule was set in place to ensure that retirees spend their tax-deferred saved amounts during their lifetime. A failure to withdraw can lead the IRS to apply an excise tax on the amount not withdrawn.
Mandatory Retirement Plans: Starting in 2025, employers will be legally required to enroll their workers into 401(k) or 403(b) plans at a rate between 3% and 10% of their pay. That percentage will be raised by 1% every year until it reaches between 10% to 15%.
In the meantime, tax write-offs and other incentives will be available for small businesses who enroll their employees in retirement plans and “rainy day fund” plans.
Yearly Allowance For Withdrawals: Today, if a worker below the age of 59 wants to withdraw from their 401k (or similar) account, they pay a 10% penalty tax. Come 2024, that penalty will be gone for withdrawals up to $1,000 per year.
Terminally-ill patients will have no withdrawal limits and victims of natural disasters will have expanded amounts allowed.
401k Benefits For Workers Paying Student Loans: Employers will be able to match some part of their worker’s student loan repayments as 401k contributions. Put simply, workers who are paying back their student loan debt will be able to get some percentage of those payments as contributions to a retirement plan by their employers.
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