401k Changes on the way as part of Omnibus spending bill

DELMARVA- Crucial changes are coming to the way retirements are earned, saved, and capitalized on as part of the Omnibus spending bill.

The changes are aimed at helping Americans save more, and earn more from 401ks, as well as expanding who qualifies and what payments can count towards revenue matching.

47ABC Spoke with Mark Welsh of UHY Group on the 7 key changes introduced as part of the bill.

Automatically Enrollment

Companies that participate in 401k plans will work on an opt-out system that enrolls employees by default and will be mandated to have a three percent minimum match and up to ten percent match for contributions.

Effective December 31st 2023

More time for saving

The measure increases the age at which minimum withdrawals are required from a 401k from the current age 72 to 73 starting in 2023 and then to 75 in 2033.

Easier access for part-time workers

Currently, part-time workers must hit 500 hours a year working for 3 years before becoming eligible for 401k plans. The omnibus bill drops one year from that requirement, allowing for more part-time workers to become eligible.

Effective December 31st 2023

Student Loan Payments

Now allows employers to make a matching contribution to an employee’s retirement plan based on their qualified student loan payments.

Effective After December 31, 2023.

“This allows you to already be at the limit of the revenue match, and to show an employer the payments you are making, and they can have that go above the match cap, and count as payments towards the 401k and be matched,” Welsh said adding ‘This is the government understanding that many people are paying down loans instead of saving and this lets them do both.”

Emergency Savings

Prior to turning 59.5 years old, there was a ten percent penalty on top of a tax hit for withdrawing money out of a 401k savings account.

Now it allows employees to make up to a $1,000 withdrawal a year for emergencies with no 10% penalty.  Those withdrawing will pay the taxes on the withdrawal in the year it’s made but if you pay back the withdrawal within three years, you will get the taxes paid back.

Effective After December 31, 2023.

Catch-Up Adjustment

Currently, you can put away an additional $6,500 when you turn 50 years old.  Now, you will be able to put away $10,000 each year when you reach 60, 61, 62, and 63.  Effective After December 31, 2024.

“These are important years, where people statistically may have their highest income and it helps people catch up as many Americans are behind the 8-ball when it comes to retirement and having enough money when the time comes,” Welsh said.

Saver’s Credit

Lower Income workers, Married couples making $71,000 or less with get a matching contribution from the Federal Gov’t up to 50% of their savings not to exceed $1,000.

 

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