The federal spending package released Tuesday includes new measures that will affect millions of Americans trying to save for retirement, including seniors who want to save extra money before retirement. they will stop working and those struggling with the burden of student debt.

Many of the policy changes in the bill, which is expected to be passed this week, will provide assistance to Americans who are already able to save or have access to workplace plans. But low- and middle-income workers will receive a new benefit that amounts to an equal contribution — up to $1,000 per person — from the federal government. Another measure would make it easier to hire part-time employees into workplace pension plans.

“This is really meaningful progress,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “We can’t expect Congress to solve all of our nation’s pension challenges in one piece of legislation, but it does include a number of measures that will get the ball rolling.”

The changes were included in a bipartisan bill, known as Secure 2.0, which was folded into a federal spending package that would keep the government running.

The retirement component builds on a series of changes made to the retirement system in 2019, which cleared the way for employers to add funds to 401(k) retirement plans and raised the required age for retirees to start withdrawing money from their retirement account. .

Some pension experts point out that the final law does just that little to expand access to the tens of millions of Americans who are not covered by workplace retirement plans, which, at least for now, are the backbone of the American pension system. According to a recent study by AARP, nearly half of private sector workers 18 to 64, or 57 million people, do not have options to save for retirement at work. .

But there are additional changes that help, policy experts say, especially at a time when Congress can’t deal with many other issues. For those struggling with student debt, employees paying off student loans are eligible for employer contributions, even if they don’t participate in a retirement plan. they are even their own milk.

Here’s a quick look at some of the changes. Many of them will not take effect immediately, but will expire in the coming years:

Employers can now enroll their employees in workplace pension plans if they choose, which is known to be important in boosting employee participation and rates.

But this bill demanding employers — at least those starting new plans in 2025 and after — to automatically enroll eligible employees in their 401(k) and 403(b) plans, and deposit at least 3 percent, but not more than 10 per cent, of their wages. The contribution will be increased by a percentage point each year thereafter, until it reaches at least 10 percent (but not more than 15 percent).

Existing plans do not need to comply with the new rules. Small businesses with 10 or fewer employees, new businesses operating for less than three years, and church and government plans are also exempt.

Employers will be allowed to automatically add to an emergency savings account, which is linked to the employee’s retirement account. They can enroll employees to contribute up to 3 percent of their salary, up to $2,500 (although employers can choose a lower amount).

The coronavirus pandemic has highlighted the importance of emergency savings, the lack of which could force young workers to withdraw money from their 401(k) and related accounts through the existing condition known as hardship withdrawal. They generally have to pay income tax and a 10 percent penalty when they do.

From a tax perspective, an emergency savings account will work similarly to a Roth account: Employees contribute to the account with tax-deductible funds, and withdrawals of contributions and funds are tax-free. enter. Employers can match emergency savings contributions, just as they might with retirement contributions. Once the account reaches the ceiling, any excess savings are returned to the employee’s Roth retirement plan, if they have one, or remain.

Employees can make one withdrawal, up to $1,000, per year from their 401(k) and IRA for certain emergency expenses — and they won’t owe the additional 10 percent penalty, which It is usually taken from people who have an early episode, usually before the age. 59 ½. The rules take effect in 2024.

Employees can top up their accounts within three years if they choose, but if they don’t repay the money, they are cut off from emergency withdrawals.

Some employers make matching contributions to the money saved in your 401(k) account or workplace pension – they may match every dollar you contribute, for example, up to 4 percent of your salary. But people with student loans may delay saving for retirement while they focus on reducing their debt, which means they’re missing out on years of free money from employers. him.

Beginning in 2024, student loan payments will count as retirement contributions to 401(k), 403(b) and SIMPLE IRAs for eligibility purposes requirements for matching contributions to workplace pension plans. The same is true for government employers who make contributions in accordance with 457(b) and related plans.

Workers with incomes as low as $71,000 will receive greater benefits — in the form of government matching contributions — when they save in IRAs and workplace retirement plans such as 401(k) s.

In its current form, the so-called Saver’s Credit allows individuals to receive up to 50 percent of their retirement savings contributions, up to $2,000, in the form of non-refundable tax credit. This means that they only get the money, up to $1,000, if they have to pay taxes. If they don’t pay taxes, they don’t get the benefits.

But starting in 2027, instead of the non-refundable tax credit – which is paid in cash as part of the refund – taxpayers will receive a federal contribution that must be deposited into the your IRA or retirement plan. Cannot be removed without penalty.

The match depends on your income: for taxpayers filing a joint return, it leaves between $41,000 and $71,000; for single taxpayers it is $20,500 to $35,500 and heads of households, $30,750 to $53,250.

Legislation passed in 2019 requires employers with 401(k) plans to allow part-time employees to participate, including those with one year of service (with 1,000 hours) or three consecutive years (with 500 hours).

Starting in 2025, the new bill would make it possible for part-time workers to contribute to an employer’s 401(k) retirement plan sooner — now two years instead of three.

People between the ages of 60 and 63 are allowed to set aside extra money for retirement. Under current law, people age 50 or older (at the end of the calendar year) are allowed to make contributions in excess of the individual pension plan limit. everything. By 2023, that means on average they can put an extra $7,500 into most workplace retirement accounts.

Beginning in 2025, the new rule will raise those limits to $10,000 or 50 percent of the value of the typical savings for that year, whichever is greater, for people with this age group. (Growth values ​​are shown at inflation after 2025).

The new rules allow retirees to delay withdrawals until age 73, benefiting mostly wealthy households who don’t rely on cash and can afford it.

Under current law, retirees generally must begin withdrawing money from their tax-advantaged retirement accounts at age 72 — before the new law was signed into law in In 2019, he is 70 1/2 years old. These rules help ensure that people spend the money and not just use the plan to shelter their heirs.

But starting next year, these so-called minimum required distributions must begin at age 73. It will increase to 75 years later starting in 2033.

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