Potential Changes to Retirement Plan Rules
If Congress passes this massive year end spending bill, sometimes referred to as the Omnibus, it could have potential changes to Retirement Plan rules.
I'll quickly run through the potential changes below:
Increased Age for RMDs: Under the law as it stands now, you generally must take required minimum distributions (RMDs) from your retirement plan beginning at age 72. If passed, SECURE 2.0, 2022, would increase the required minimum distribution age to 73 beginning January 1, 2023. That's a key RMD change you could see in the new year, but then in ten years, the RMD age would move to 75.
Small Incentives to Contribute to a Retirement Plan: Secure 2.0 2022 would allow your employer to offer small financial incentives (e.g., low-dollar gift cards) to help boost employee participation in a workplace retirement plan. This provision would become effective for plan years after the law passes (if it does).
Emergency Expense Distributions: Beginning in 2024, under the SECURE 2.0 Act of 2022, you would be allowed to take an early “emergency” distribution from your retirement account to cover unforeseeable or immediate financial needs. That emergency distribution of up to $1,000, could only be taken once during the year, but wouldn’t be subject to the usual additional 10 percent tax that applies to early distributions. But: if you choose not to repay the distribution within a certain time, you wouldn’t be allowed to take other emergency distributions for three-years.
Other hardship withdrawals are provided for in the proposed legislation including for 403(b) plans. (Currently, distribution rules for 403(b) and 401(k) plans are different, so SECURE 2.0, 2022, would conform those rules.) Also, under the legislation, penalty-free withdrawals, on small amounts of money from retirement plans in cases involving domestic abuse, would be allowed.
Automatic Enrollment in Retirement Plans: Beginning in 2025, the SECURE 2.0 Act of 2022 would expand automatic enrollment in retirement plans. The rationale for this is that automatic enrollment in 401(k) plans has been shown to increase participation. With some exceptions for small businesses, the bill would require 401(k) and 403(b) plans to automatically enroll eligible participants, who would then be able to opt out of participation, if desired.
Higher Catch-up Contribution Limit: Right now, if you are 50 or older you can make catch-up contributions to your retirement plan up to certain limits. SECURE 2.0, 2022, would increase those limits, beginning in 2025, to the greater of $10,000 or 50 percent more than the regular catch-up amount if you are 60, 61, 62, or 63 years old. After 2025, those amounts would be indexed for inflation.
Saver’s Match: Beginning in 2027, the SECURE 2.0 Act of 2022 would replace the nonrefundable Saver’s Credit for certain IRA and retirement plan contributions with a federal matching contribution that is deposited into your IRA or retirement plan. The match would be 50% of IRA or retirement plan contributions up to $2,000 per person. However, some income limits, and phase-outs, would apply.
Employer Fund Match for Student Loan Payments: Under the SECURE 2.0 Act of 2022, your employer could make a matching contribution to your retirement plan account based on your student loan payment amount. This is designed to address the fact that high student loan debt can keep people from saving for retirement. This would become effective in 2024.
Retirement Savings “Lost and Found”: The SECURE 2.0 Act of 2022 would enable the creation of a searchable database to help people find retirement benefits that they lost track of. The retirement savings “lost and found” would be housed at the Department of Labor and would be created within two years of the bill’s enactment.
Those are just a few of the provisions in the massive spending bill, but they are the ones I find most important.
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