close
Americans preparing for retirement should get out of target date funds: Nicole Webb
Wealth Enhancement Group senior vice president Nicole Webb provides insight on building a retirement fund on 'Making Money.'
A collection of provisions designed to overhaul the U.S. retirement system and help Americans save more could soon become law.
Included in the sweeping, end-of-year spending package that Congress is expected to vote on in the coming days are a series of measures that are part of the long-delayed "Secure 2.0 Act." Lawmakers have until Friday to pass the $1.7 trillion omnibus spending package in order to keep the government funded, or to approve a continuing resolution to push the deadline into next year.
Secure 2.0 – a follow-up to the 2019 Secure Act – is designed to bolster Americans' retirement savings by making a number of key changes to existing retirement account rules and certain related tax breaks.
"Including Secure 2.0 retirement provisions in the last major legislation of the year means that Congress is poised to help millions more workers and retirees with significant improvements to the nation’s private retirement system," Paul Richman, the chief government and political affairs officer at the Insured Retirement Institute, said in a statement.
FED SLOWS INTEREST RATE INCREASES WITH 50-BASIS-POINT HIKE, BUT SIGNALS MORE TO COME
People walk outside the U.S Capitol building in Washington, June 9, 2022. (AP Photo/Patrick Semansky, File / AP Newsroom)
Here are some of the ways that Secure 2.0 would overhaul the current retirement system:
Automatic 401(k) enrollment
Beginning in 2025, employers that offer 401(k) or 403(b) savings plans would be required to automatically enroll employees at a rate of at least 3%, with mandatory 1% increases each year to a maximum rate of 10%. Employees could choose to opt out of the plan.
Small businesses with 10 or fewer workers and new businesses in existence for fewer than three years would be exempt from the rule.
President Biden speaks to African leaders gathered for the U.S.-Africa Leaders Summit Wednesday, Dec. 14, 2022, in Washington. ((AP Photo/Patrick Semansky) / AP Newsroom)
Creating bigger "catch up" contributions for older savers
Under current law, Americans who are 50 or older can make so-called catch-up contributions of no more than $6,500 per year to their 401(k) and 403(b) plans, with a limit of $27,000.
US NATIONAL DEBT ON PACE TO BE 225% OF GDP BY 2050, PENN WHARTON SAYS
But Secure 2.0 would increase the annual catch-up by 50% to $10,000, indexed annually for inflation, for participants between the ages of 60 and 63 starting in 2025.
On top of that, all catch-up contributions would be subject to Roth rules – meaning individuals pay taxes on the money upfront.
Increased age for RMDs
The bill would raise the age that Americans must take a required minimum distribution from their retirement plan to 73 beginning in 2023, up from the current age of 72.
In 10 years, the RMD age would once again move up to 75.
close
Charles Payne: Selling anything in your retirement account is simply nuts
FOX Business host Charles Payne provides insight on saving for retirement on 'Making Money.'
Emergency expense distributions
Beginning in 2024, Americans would be allowed to take an early "emergency" distribution from their retirement accounts to cover unexpected or immediate financial needs. Individuals could take out as much as $1,000. The money could be taken once a year and would not be subject to the usual 10% tax that applies to early distributions.
However, there is a catch: Anyone who takes the emergency expense option but does not pay it back within a certain time frame will not be allowed to tap the retirement fund penalty free for another three years.
Expanding employer 401(k) match options
Another aspect of Secure 2.0 would make it easier for employers to make contributions to 401(k) plans on behalf of employees paying off student loan debt. Employers could essentially make a matching contribution to your retirement account based on your student loan payment amount – a rule intended to remove student loan debt as a major obstacle to retirement savings.
CLICK HERE TO READ MORE ON FOX BUSINESS
Incentives for retirement plan contributions
Secure 2.0 would allow employers to offer small financial incentives to employees to encourage them to participate in any offered retirement plans.
