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Wedged into a $1.7 trillion government spending package that would need to pass Congress by Dec. 23 to avoid a government shutdown are seven retirement savings provisions known as Secure 2.0.
If passed, the revamped retirement rules would make it easier for workers to save money and accumulate retirement savings, while also making it less costly to access the funds. Features of Secure 2.0 include:
- Require automatic enrollment in 401(k) plans: Employers would be required to automatically enroll new, eligible employees in retirement plans, which is currently optional. Employers would also need to set a default contribution rate of at least 3% plus an automatic contribution increase of 1% a year. Employees could still opt out of plans if they choose.
- Allow employer contributions for student loan payments: Employers could make matching contributions to employees’ retirement accounts based on their student loan payments.
- Increase the age for required minimum distributions: Right now, once you hit 72, you are required to start withdrawing a minimum amount from your 401(k) or IRA every year. The age would rise to 73 in 2023 and then 75 in 2033.
- Allow penalty-free emergency withdrawals: Employees would be able to make emergency withdrawals of up to $1,000 each year without the current 10% early withdrawal penalty that applies to all withdrawals unless hardship can be proven. Income tax on the withdrawal would still apply but could be refunded if the withdrawal is paid back within three years.
- Increase catch-up contribution limits: Employees ages 60-63 would be able to contribute $10,000 to their retirement accounts in addition to the annual federal limit. The current catch-up amount is $6,500.
- Simplify the Saver's Credit: Currently, lower-income earners can receive a federal retirement savings match of up to $2,000 a year. The bill would reduce the amount contributed to up to $1,000 but more workers would be eligible.
- Reduce part-time worker requirements: Under current rules, part-time employees who work at least 500 hours a year must be allowed to participate in retirement plans after three years, but the legislation would reduce the eligibility period to two years.
If the massive omnibus spending bill passes, some of the Secure 2.0 provisions would go into effect as soon as Dec. 31, 2023, while others stretch to as late as 2026.