The $1.7 trillion omnibus spending bill that the Senate and the House recently passed will add billions of dollars to many government programs. Besides providing more funding for the government through September of next year, it will also help more people be able to retire with more savings than before.
Lawmakers realized, according to Finance.Yahoo, that about half of Americans are either not saving enough or have no retirement savings at all. The goal of the bill is to encourage people to save more money and help those that do not make enough money to develop some retirement savings.
The part of the bill dealing with retirement is called Secure 2.0. These provisions expand those under the 2019 Secure Act, which passed three years ago.
Here are some new provisions that will enable more people to develop retirement savings.
Providing Matching Funds for Student Loan Payments
One thing that prevents young people from saving money is paying back student loans. The new omnibus bill encourages companies to match money that an employee pays toward student loan debt. When an employer does this, it helps the employee get a head start on retirement savings, which otherwise would not be possible until the student loan debt is paid.Increase the Age for Required Minimum Distributions (RMDs)
Before the 2019 Secure Act was passed, those with retirement plans had to begin getting RMDs at 70 1/2. Getting RMDs at this age meant that retirement savings began decreasing too early for some. Many people did not have enough money saved and needed to work longer to build a larger retirement fund before drawing it down. The 2019 Secure Act increased the RMD age to 72.According to CNBC, the new Secure 2.0 has raised the age for RMDs again. The new RMD age will be increased two times in the future: in 2023, it will be raised to age 73, and then again in 2033, to age 75.
Decrease the Penalty for Not Taking RMDs
Right now, if the full RMD amount is not taken out of the account on time, there is a penalty of 50 percent of the amount not withdrawn. The new Secure 2.0 reduces the penalty amount to 25 percent and possibly even 10 percent in some cases.Employers Must Enroll New Employees in 401(K)s
It will no longer be an option for employers to enroll new employees in their 401(k) plans. Employers with more than 10 employees will have to pay at least 3 percent of the employee’s salary into the account—but not more than 10 percent. The Center for Economic and Policy Research (CEPR) mentions that the employers’ contributions will start at 3 percent and increase 1 percent per year until it hits a maximum of 10 percent.The employer’s contributions enable even the poorest of workers to have some retirement savings. The employee has the option to make contributions or not. If the employee determines it would be best to have the extra money in their paycheck, they can.
Money Back From the Saver’s Tax Credit
Many people that could benefit from the saver’s tax credit could never do so because they did not make enough money. Congress has realized this and made changes in the Secure 2.0 bill, making it refundable. Even people that do not report any income can benefit now from the credit.The credit money will be deposited directly into the individual’s retirement account. It will match 50 percent of the employee’s contribution up to $2,000, says the Senate bill. The money phases out for people making $41,000 to $71,000 for people filing a joint return or $20,500 to $35,000 for singles. The money is not currently available, but will be after Dec. 31, 2026.
Increased Catch-Up Limits
In the past, catch-up limits on various retirement accounts were limited to $6,500—and only after the individual turns 50. The new limit has been raised to $10,000, or 50 percent more than the regular catch-up amount, but only for people who are 60, 61, 62, or 63. The additional amount takes inflation into account, and starts after Dec. 31, 2024. The American Association of Individual Investors (AAII) says that after 2025, all catch-up amounts will be based on inflation.Businesses Without a Retirement Plan Can Offer One
The Secure 2.0 plan seeks to get more people enrolled in a retirement plan offered by an employer. A starter 401(k), or a 403(b) plan, would require all employees to be enrolled by default. They would be given 3–15 percent deferrals on compensation. The contribution limit for those under 50 is $6,000 in 2022, and those over 50 can add another $1,000. These changes will take place after Dec. 31, 2023.Part-Time Workers to Be Added to Employer’s 401(K) Plans
The new retirement policy will require that employers allow part-time workers to have two ways to become eligible for an employer’s 401(k) plan and some 403(b) plans. An employee will need to have worked for one year for at least 1,000 hours, or will have worked for the employer for three consecutive years, for a minimum of 500 hours. Instead of the three-year requirement, it will be reduced to two years after Dec. 31, 2024. An exception to this rule is when collectively bargained plans are in place.Funds From 529 Plans Can Be Rolled Over Into Roth IRAs
Families that funded 529 plans for their children have sometimes found that the money was not always used up. It often left funds unavailable to families, unless they were willing to pay a withdrawal penalty.Secure 2.0 changes the problem by allowing unused funds to be rolled over into a Roth IRA without penalties. There is a lifetime rollover limit of $35,000, and they must follow annual contribution limits for Roth IRAs. The 529 account must have been open for 15 years before conducting a rollover.
These are only some of the changes that Secure 2.0 makes to retirement plans. Many of them have been needed for a long time and they will help many people save more money for a more comfortable retirement. Be sure to talk to your employer about the new benefits to ensure that you will get the ones that apply to you.
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