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Big changes to retirement savings in new federal spending bill: NPR

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Federal year-end spending bill contains major changes to U.S. retirement savings

Susan Walsh/AP


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Susan Walsh/AP


Federal year-end spending bill contains major changes to U.S. retirement savings

Susan Walsh/AP

The $1.7 trillion spending bill that President Biden is expected to sign into law this week includes several key provisions intended to make it easier for workers to save for retirement.

It comes as more Americans work later in life, often unable to cope with Social Security and retirement savings. By 2030, the number of people aged 75 and over who will be working or looking for work is expected to grow by 96.5%, according to the Bureau of Labor Statistics.

“The big problem is that since modern history, only about half of workers have ever had a retirement plan,” says Monique Morrissey, an economist at the Economic Policy Institute, referring to savings vehicles like 401(k)s. More than half of workers have little or nothing.

Many Americans don’t have access to a private retirement savings plan

The median 401(k) balance for Americans age 65 and older is $87,700, according to data compiled by the investment firm. Avant-garde.

The new legislation, known as Secure 2.0would especially benefit workers who already have access to workplace pension plans, But there are features that would help some employees who can’t get them to work.

Currently, a third of Americans don’t have access to any private retirement savings plan, like a 401(k), according to PricewaterhouseCoopers.

Here are some ways the proposed retirement provisions aim to help workers:

emergency savings

Currently, 51% of Americans cannot afford more than three months of expenses through an emergency fund, and 25% say they have no emergency fund at allaccording to consumer financial services company Bankrate.

Under the new policy change, unless employees opt out, employers would be allowed to automatically enroll workers in an emergency savings account alongside their retirement plan, up to $2,500. Workers would contribute to the account with money that has already been taxed; Withdrawals would be tax free.

Employers could also offer workers a one-time annual withdrawal of $1,000 from their retirement accounts for certain emergency expenses, and the employee would not have to pay the normal 10% penalty.

Part-time workers

Part-time workers would no longer be required to work three consecutive years to be eligible for their company’s 401(k) plans, a policy introduced under the Secure Act of 2019. Instead, part-time workers should work between 500 and 999 hours for two consecutive years to be eligible for their company’s 401(k) plans.

Student Loan Borrowers

Workers with large student loans often choose to pay off their debts instead of contributing to retirement savings. A survey of nearly 500 workers revealed that 79% said their student debt reduces their ability to save adequately for retirement, according to a 2016 study by Fidelity Investment.

Under the new law, beginning in 2024, student loan repayments would be considered pension contributions and eligible for a matching employer contribution.

More tax credits available

Currently, only low- and middle-income earners who owe at least $1,000 in taxes can recoup half of their retirement savings contribution – a maximum of $1,000 – as a non-refundable tax credit. .

Under the new provisions, workers who up to $71,000 per year will receive a government matching contribution when saving through a workplace pension plan. This contribution would be deposited in retirement accounts and could not be withdrawn without penalty.

Automatic registration

The bill would require employers to automatically enroll employees in 401(k) and 403(b) plans starting in 2025. Automatic employee contributions would increase by 1% each year until they reach at least 10 %, but not more than 15%.

Small businesses with less than 10 employees, churches and government plans would be exempt.

Catch-up contributions and required minimum distributions

This provision is intended to give high earners an extra boost as they approach retirement age.

Right now, people age 50 and older can spend an extra $7,500 a year on their 401(k). Starting in 2025, this limit would increase to $10,000.

The bill would also raise the age at which Americans are required to withdraw from tax-deferred retirement accounts from 72 to 73 on January 1. 1 and finally to 75 in 2033.

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