The Rules Of Retirement Getting Major Overhaul, Here’s What You Should Know
The latest omnibus bill arrived at the Senate this week, with the initial vote scheduled for Friday. Portions of the massive spending bill have topped news headlines this week, but there are also some critical, less-talked-about provisions. Some of those that may surprise you include updates to retirement rules.
Lawmakers cobbled together retirement-related provisions from smaller bills previously passed by only one side of Congress. They packaged the stalled bills together and renamed them Secure 2.0. It contains seven provisions you need to know if you are in or nearing retirement.
Currently, older workers bump up against limits to how much they can contribute to a 401k. Workers over 50 can add $6,500 to the current federal contribution cap of $6,500. However, the provision raises that additional saving (known as “catch-up”) amount.
Instead, you could “contribute $10,000, or 50% more than the regular catch-up amount in 2025, whichever is greater,” according to CNN. The only catch is that catch-up contribution is not before tax. You would get taxed on the front end.
Secure 2.0 would also raise the age for minimum required distributions. Currently, you must withdraw a minimum annual amount from your IRA or 401k at age 70 1/2. The provision bumps that age up to 73 and then 75 by 2033.
The provisions also require employers to enroll employees in a retirement plan. Companies would have to set a default contribution rate of 3%, with an annual increase of 1% until hitting the upper limit. That upper contribution limit is “at least 10% but not more than 15%.”
Employees would then have to opt-out of the retirement plan if they chose not to participate. This provision is particularly important, as it may ultimately impact your take-home pay. Keep an eye on the omnibus bill if you closely monitor your retirement contributions.
Another key update contained in Secure 2.0 is that it will make retirement savings easier for part-time employees. The good news is those workers will need less service time under their belts to qualify for a workplace plan. It reduces the time from three years to two.
Additionally, workers may access their retirement accounts for emergencies without the added tax penalty. And that will be welcome news to many! While you will pay income tax on it, that amount would get refunded if you repay the loan in under three years.
And if you are struggling with student loan debt, you may like the next provision. It allows employers to match your contribution based on your student loan payment. So, you can pay down your student loans and still save for retirement.
And last but not least, there are updates to the Saver’s Credit in Secure 2.0. “An underutilized federal match exists for lower-income earners’ retirement contributions of up to $2,000 a year. The new package would enhance and simplify the so-called Saver’s Credit so more people could use it.”
Married tax filers may request a match from the federal government for their savings efforts in a tax year. The provision stipulates that couples making under $71,000 a year can ask for up to a 50% match. The cap is $1,000.
