Congress has already approved – and President Joe Biden has signed – the massive $1.7 trillion federal spending bill. This massive year-end spending bill includes several changes to retirement plans. The new regulations will impact your retirement accounts like 401(k) plans, IRAs and Roth IRAs.

All retirement-related reforms have been tucked under SECURE Act 2.0, which is part of the 4,155-page spending bill that will fund every federal agency and government program through Sept. 30, 2023. The SECURE Act 2.0 builds on the SECURE Act, which was approved by Congress in 2019.

The bipartisan bill includes more than 90 retirement-related changes. Some of these changes will be effective immediately, while other changes will take effect in 2024 or beyond. Let’s take a look at some of the biggest changes to retirement plans under SECURE Act 2.0.

Biggest Changes To Retirement Plans Under SECURE Act 2.0

Extension Of Age For Required Minimum Distributions (RMDs)

Currently, the minimum age to start receiving required minimum distributions from 401(k) and IRA accounts is 72. This will change with SECURE 2.0. The starting age under SECURE 2.0 for RMDs is 73 (effective Jan. 1, 2023) and then 75 (effective Jan. 1, 2033).

Additionally, SECURE 2.0 will also reduce the penalty for failing to take RMDs, from 50% currently to 25% and to 10% if the error is corrected “in a timely manner.” The changes to the penalty will be effective immediately.

Changes To Early Withdrawal

The current rules allow taxpayers to withdraw money from their 401(k) savings plans before retirement for an “immediate and heavy” financial need. Taxpayers, however, may have to pay income tax on such withdrawals. Moreover, there is a 10% tax penalty for early withdrawal by those under age 59½.

Under the new rules, taxpayers can make one withdrawal of up to $1,000 a year for personal or family emergency expenses. Taxpayers can self certify that they are withdrawing money for an emergency. Additionally, the new rules eliminate the 10% tax penalty as well.

If approved, the changes to early withdrawal rules will be effective in 2024.

Changes To Tax Credits

The SECURE 2.0 Act repeals and replaces the IRA tax credit or the “Saver’s Credit.” Those eligible won’t get a nonrefundable tax credit, but will receive a federal matching contribution to a retirement account. This change will be effective in the 2027 tax year.

Separately, changes are also being made to laws regarding retirement account rollovers from 529 plans. Currently, a taxpayer faces a 10% federal penalty on the money withdrawn from a 529 plan if it’s not used for education.

Under the new bill, taxpayers will be able to roll over up to $35,000 (in their lifetime) from a 529 plan into a Roth IRA, provided their 529 account is at least 15 years old. It must be noted that taxpayers’ still need to meet Roth IRA annual contribution limits.

Changes For Employers And Employees

Under the new rules, any new 401(k) or 403(b) plans will automatically enroll workers who don’t opt out. This change, however, will be effective in 2025.

Additionally, the contributions from workers will now start at a minimum of 3% and a maximum of 10%. Moreover, the contributions will rise 1% each year after 2025 until it reaches a range of 10% to 15%.

Another change is that employers now have the option of offering “pension-linked emergency savings accounts” to employees. Employers will be able to automatically register employees at up to 3% of their salary with a contribution cap of $2,500. These emergency accounts will be taxed like Roth contributions and will be eligible for employer matching as well.

Employees will be allowed to make four withdrawals per year from the emergency accounts without having any penalty or extra taxes. After an employee leaves a company, they will have the option to roll it over into a Roth account, or withdraw the amount in the emergency account as cash.

Under the SECURE 2.0 Act, employers will also be able to automatically transfer an employee’s IRA into a retirement plan at a new employer. Also, employees will now be able to withdraw up to $22,000 from an employer-sponsored plan or an IRS in case of a federally declared disaster.

Another important change is for part-time workers. Long-term part-time workers with at least 500 hours of service will qualify for the company’s retirement plan after two consecutive years (from three years currently).

Boosts Contribution Limit

The SECURE 2.0 Act doesn’t change the standard limits for contributions to 401(k) plans and IRAs, but raises the “catch-up” limit for Americans over 50. Also, the new act adds potential “catch-up” contributions for those older than 60.

Currently, people aged 50 and up are allowed to contribute $1,000 extra toward their retirement accounts over the standard limit. The new changes will allow older Americans to add an additional amount that is indexed to inflation.

Savings Through Student Loan Debt

The new rule will allow people to save for their retirement while paying student loan debt. Under SECURE 2.0, there is an option for employer plans to credit student loan payments with matching donations to 401(k) plans, 403(b) plans or SIMPLE IRAs. Moreover, government employers will be allowed to make a matching contribution to 457(b) plans. This new rule will be effective in 2025.

This article originally appeared on ValueWalk

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