Not only will 401(k) plans undergo changes, but other retirement saving plans will have updates too. Congress has decided to introduce changes to these retirement plans through the bill known as the Secure Act 2.0. In order to adapt to the new reality and to the current situation 401(k) plans as well as other ones need to be improved to be able to boost retirees’ savings.
One of the things that Congress has changed is the age raise for compulsory withdrawals to 75 years old in 2033. For instance, it was at age 72 when you had to start making distributions. So there will be three years extra to earn more money in ten years’ time. Bear in mind that the IRS requests Required Minimum Distributions at a certain age. The new RMD age will be 73 in 2023.
Another very important update is the beginning of automatic enrolments in new 401(k) plans. It will be beneficial for the employee since this process could be delayed unnecessarily. The sooner the employer enrolls the employee, the higher their 401(k) savings will be. Thus, those who are employers will be in charge of the enrolment. To start with contributions will be at a 3% rate.
Emergency Savings Accounts linked to 401(k) plans could be helpful for many workers
From now on, employers could also offer accounts to save money for emergencies. They will be linked to the employee’s 401(k) retirement plans. In this way, employees will be able to save some money for unexpected events. There are many workers who are not good at saving money since they live hand to mouth. Therefore, this useful tool could be beneficial to avoid unpleasant situations and having to ask for a high-interest loan.
Another measure for students is new too. This measure has to do with student loan payments. They may count as if they were retirement contributions. If you are a student and you have to pay a loan for your expenses, such as tuition fees, university dormitories, and so on, you might not be able to save for your 401(k) retirement plan.
From 2027 onward, those workers who are either low- or middle-income could receive a government match. This is great news because it could definitely boost their savings. The amount could reach $1,000 but it will start in 2027. The last interesting change is the fact that catch-up provisions will go up too. Those 50-year-olds will benefit from this measure if they have saved enough to make contributions. The limit was $6,500 in 2022 and it will be 7,500 in 2023. So this additional cash will be fantastic to have a higher source of income in the future. Remember to be updated to make the most of your 401(k) plan.