The new year brings many changes for workers in the United States who contribute to a pension plan.
Most important 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 additional $2,000 per year, up to a new limit of $22,500.
Those with Individual Retirement Accounts (or IRAs) will be able to increase their contributions to $6,500 per year.
What the Secure 2.0 law brings to 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 at which Americans begin to have required minimum distributions will no longer be 72. From 2023, it will be 73 years old and will increase to 75 years old in 2033.
The required minimum distribution rule was put in place to ensure retirees spend their savings tax-deferred over their lifetime. Failure to withdraw may result in the IRS applying excise tax on the unwithdrawn amount.
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Mandatory pension plans: Starting in 2025, employers will be legally required to enroll their workers in 401(k) or 403(b) plans at a rate of between 3% and 10% of their salary. This percentage will be increased by 1% each year until it reaches between 10% and 15%.
In the meantime, tax deductions and other incentives will be available to small businesses that enroll their employees in pension plans and “bad weather fund” schemes.
Annual allowance for withdrawals: Today, if a worker under 59 wants to withdraw from their 401k (or similar) account, they pay a 10% tax penalty. In 2024, this penalty will disappear 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 a portion of their workers’ student loan repayments as 401k contributions. Simply put, workers paying off their student loans will be able to get a certain percentage of those payments as pension plan contributions through their employer.
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