Retirement savings plans will undergo several changes in the US
Lawmakers in the US are studying the approval of a package of retirement reforms that would change the rules in this respect for millions of people in the country.
With the package will come new rules that could make it easier for Americans to accumulate retirement savings, and less expensive to withdraw, CNN reported.
The US Senate and House of Representatives have already passed several versions of said retirement reform and are now trying to bundle the three bills into one big package known as Secure 2.0.
Until now many of the details are being kept secret. We give you the 7 main aspects to take into account with the changes that the law would have.
Automatic enrollment in 401(k) plans
Employers starting new workplace retirement savings plans may be required to automatically enroll employees in the plan.
It would then be up to the employee to actively opt out if they do not want to.
Contributions for student loan payments in the US
When you have student loan debt to pay off, it's also harder to save for retirement.
The Secure 2.0 plan could allow employers to make a matching contribution to an employee's retirement plan based on their student loan payments.
Age for required minimum distributions will be increased
Before, when you turned 70½, you had to start withdrawing a minimum required amount from your 401(k) or IRA plan. Then the age rose to 72 years.
Under the latest legislation, you probably won't need to use your retirement savings until age 75 if you don't want to.
Create and access emergency savings
If you use your 401(k) plan before age 59½, you must not only pay taxes on that money, but also pay a 10% early withdrawal penalty.
For employees who are discouraged from saving money in a tax-deferred retirement plan because they worry it's too complicated and expensive to access for emergencies, the Secure 2.0 plan can include one or two options to allay that fear.
Update contribution limits for older workers will be increased
Currently, if you're age 50 or older, you can contribute an additional $6500 to your 401(k) plan in addition to the annual federal limit of $20500.
Under the retirement package, people between the ages of 60 and 64 (final range may be narrower) can contribute $10000, instead of $6500.
Improve and simplify savings credit
There is an underutilized federal match for low-income retirement contributions of up to $2000 a year.
The new retirement package could improve and simplify the so-called savings credit so that more people can use it. Low-income taxpayers could get a refundable tax credit worth 50% of their savings up to a contribution limit in a given year.
Facilitate part-time workers in the US to save
Part-time workers currently must be able to participate in a workplace retirement plan if they have at least three years of service and work at least 500 hours per year. The new package would likely reduce that service time to two years.
Author: MiamiDiario JM 7:18 am