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Retirement accounts such as 401(k) plans, IRAs and: Roth IRAs It will soon come under new regulations now that the Senate and House have approved a $1.7 trillion federal spending bill that includes new regulations for pension plans.

Following in the footsteps of the SECURE (Retirement Enhancement for Every Community) Act of 2019, the SECURE 2.0 Act of 2022 promotes employer pension plans and gives investors more options.

The federal spending bill now heads to President Joe Biden, who is expected to sign it before a Dec. 30 deadline.

The biggest changes for most Americans with retirement accounts will be raising the age of required minimum distributions and increasing the “catch-up” limits for people over 60. But there are a total of more than 90 different pension changes in the bipartisan bill.

Some retirement account changes will take effect immediately after the bill is passed, while others will begin in 2024 or later.

Required Minimum Distributions (RMDs)

Currently, Americans must begin taking required minimum distributions (RMDs) from their 401(k) and IRA accounts starting at age 72 (or 70 1/2 if you reached that age by January 1, 2020). If approved, the SECURE 2.0 Act of 2022 would raise the age for RMDs to 73 starting January 1, 2023, and then to 75 starting January 1, 2033. (Roth IRAs are not subject to RMDs).

The new rules will also reduce the penalty for not taking RMDs. The previously steep excise duty of 50% will be reduced to 25% and will be reduced to 10% if the error is rectified in time. The reduction in penalties will take effect immediately after the law is passed.

Investment limits

While the standard contribution limits to 401(k) plans and IRAs would not change, the bill would boost the “catch-up” limit for Americans over 50 and introduce an additional potential “catch-up” contribution for people over 60.

IRS law currently allows people age 50 and older to contribute an additional $1,000 to their retirement accounts each year above the standard limit. Starting in 2024, instead of $1,000 more, older Americans will be able to invest an additional amount that is indexed to inflation.

For people aged 60, 61, 62 or 63, they will soon be able to set aside more money if the bill is passed. In 2025, those seniors will be allowed to contribute up to $10,000 a year or 50% more (whichever is greater) than the standard contribution for those 50 and older. Those increased investment limits will also be indexed to inflation starting in 2025.

Tax credits

If the sweeping spending bill passes Congress and is signed into law, the law would repeal and replace the IRA tax credit, also known as the Savings Credit. Instead of a nonrefundable tax credit, those who qualify for the Savings Credit will receive a federal matching contribution to a retirement account. This change in tax law will begin in the 2027 tax year.

In the proposed legislation, Congress also changes IRS rules for refunding retirement accounts from 529 plans, which are tax-advantaged savings accounts for higher education. Currently, any money withdrawn from a 529 plan that is not used for education is subject to a 10% federal penalty.

In the bill, beneficiaries of 529 college savings accounts would be allowed to roll over $35,000 from the 529 plan to a Roth IRA over their lifetime. A Roth IRA is still subject to annual contribution limits, and the 529 account must be open for at least 15 years.

Early removal

The SECURE 2.0 Act of 2022 includes several rule changes that will benefit Americans who need to withdraw money from their retirement accounts early. Typically, withdrawals from retirement accounts made before the account owner turns 59½ are subject to a 10% penalty.

First, Congress plans to add a major emergency exception. Account holders younger than age 59 and a half can withdraw up to $1,000 a year for emergencies and have three years to repay the distribution if they choose. No more emergency withdrawals can be made during that three-year period until repayment is made.

The bill also states that employees will be allowed to self-certify their emergency situations, meaning no documentation other than personal statements is required. The bill would also completely abolish the penalty for terminally ill people.

Americans affected by natural disasters would also get some relief under the proposed changes. The proposed new rules would allow distributions of up to $22,000 from employer plans or IRAs in the event of a federally declared disaster. The amounts will not be penalized and will be treated as gross income for three years. If the bill passes, the rule would apply to all Americans affected by natural disasters after January 26, 2021.

The new pension rule changes will also allow account holders to make early withdrawals from 403(b) plans, similar to 401(k) plans. Currently, unlike 401(k), hardship withdrawals from 403(b) accounts only include employee contributions, not earnings. Beginning in 2025, the hardship withdrawal rules will be the same for 403(b) and 401(k) plans.

Student loan debt

One of the more revolutionary changes included in the SECURE 2.0 Act of 2022 will be the option for employers to credit student loan payments against matching contributions to 401(k) plans, 403(b) plans or SIMPLE IRAs. Government employers may also contribute matching amounts to 457(b) plans.

This will mean that people with significant student loan debt can still save for retirement by simply making their student loan payments without directly investing in a retirement account.

The new regulation will enter into force in 2025.

Changes for employers

The changes to retirement account rules proposed in the SECURE 2.0 Act of 2022 will affect employers at least as much as employees. The biggest change for companies will be that starting in 2025, any new 401(k) or 403(b) plans must automatically enroll employees who don’t opt ​​out.

Auto-enrolled employee contributions will start at a minimum of 3% and a maximum of 10%. After 2025, those amounts will increase by 1% each year until they reach between 10% and 15%. Pension plans established before 2025 will not be subject to the same requirements.

Changes to pension rules will also allow employers to offer workers “linked retirement emergency savings accounts” that will act as hybrids between emergency and retirement savings. Employers can automatically enroll employees up to 3% of their salary with a contribution limit of $2,500.

Contributions to these emergency accounts will be taxed like Roth contributions and matched by the employer. Employees could make four withdrawals per year from the account without penalty or additional taxes. If they leave the company, they can withdraw the emergency account as cash or transfer it to a Roth account.

Other changes for employers would allow companies to automatically roll over a participant’s IRA to a retirement plan at a new employer unless the participant explicitly opts out. The SECURE 2.0 Act would also give pension plan administrators the ability to choose not to reimburse retirees for accidental overpayments, and it sets protections and limits for retirees if companies decide to claw back the money.

More information for investors

If approved as part of a larger spending package, the SECURE 2.0 Act of 2022 would introduce several broad changes to retirement in America as a whole. One of the biggest will be the Labor Department’s mandate to create a national, searchable database of retirement plans to help people find lost or misplaced accounts. The agency would be required to operate the database within two years of the bill’s passage.

The Employee Retirement Income Security Act of 1974 (ERISA) will also get an update. ERISA sets minimum standards for private retirement plan administrators, including communications with participants.

A proposed change to the ERISA rules would require private retirement plans to provide participants with at least one paper statement per year unless the participant opts out. However, the rule will not take effect until 2026 and will not affect the other three quarterly reports required by ERISA.

To learn more about retirementget everyone’s answers your social security questionsincluding if you can get benefits while you are still working.


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