Smart Money: Retirement Changes You Might Have Missed

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Welcome to the NerdWallet Smart Money podcast where we answer your real money questions.

In this week’s edition, we discuss the latest changes to retirement benefits and what they mean to you.

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Congress passed a $1.7 trillion bill to avoid a government shutdown just before the holidays that included some key changes to retirement benefits that will be felt in the coming years.

The provision, called Secure 2.0, will mainly affect Americans who have a retirement account through their employer. And the bulk of the changes will affect older Americans who are already financially secure. Here are some of the key features of Secure 2.0 that will be rolled out over the next few years:

  • Employers may calculate employee student loan payments when matching pension funds on an employer-sponsored 401(k). Beginning of 2024.
  • The age at which you must withdraw money from a retirement savings account is being pushed back to 73. Starts from 2023.
  • Contributors can withdraw up to $1,000 from their 401(k) and IRA accounts without penalty to cover certain financial emergencies. Beginning of 2024.
  • Those with 529 educational savings accounts can transfer a portion of the funds to a Roth IRA account – up to $35,000 for a lifetime. Beginning of 2024.
  • Employers are beginning to automatically enroll workers in any new employer-sponsored retirement plans and employer-sponsored emergency savings accounts. Both start in 2025

Additional changes to savings accounts are coming in 2023, including maximum annual contributions and health savings account limits. Retirees will also receive a welcome boost in the form of higher Social Security cost-of-living adjustments, as well as cheaper Medicare Part B premiums and deductibles.

Have a money question? Write or call us at 901-730-6373. Or you can email us at [email protected] To listen to previous episodes, go to podcast homepage.

Episode transcript

Sean Piles: You may have missed it at the end of last year, but Congress passed some pretty notable changes to how you can save for retirement, including one change that would make student loan payments count towards retirement contributions. In this edition of Smart Money, dedicated to Financial News, we will tell you about it.

Anna Helhosky: Welcome to the NerdWallet Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I am Anna Helhosky.

Sean Piles: And I’m Sean Piles. If you have a question about nerd money, call or email our nerd hotline at 901-730-6373, this is 901-730-NERD, or email us at [email protected]

Anna Helhosky: Follow us wherever you get your podcasts to get new episodes in your feed every Monday. And if you like what you hear, leave us a review.

Sean Piles: Anna, as I said at the beginning, many people may have missed a lot of the retirement account changes that were approved by Congress late last year. Can you tell our listeners what’s going on?

Anna Helhosky: Of course. If you’re anything like me, you may have been a little checked right before the holidays, so you too may have missed the details of the massive federal spending package that was passed shortly before. The $1.7 trillion bill was passed fairly quickly to avoid shutting down the government. It also includes a provision that will directly affect millions of Americans in the coming years.

Sean Piles: The provision is known as Secure 2.0 and it brings many changes to how people can save money for retirement, although we should note that many of these changes will come into effect in the coming years. Here’s what Secure 2.0 will do to save money. One big change is that starting in 2024, employers can base 401(k) compliance on an employee’s student loan payments. Borrowers with student loan debt often report being unable to contribute to their 401(k) at work due to their debt. Secure 2.0 gives employers the ability to calculate an employee’s student loan payments when an employer invests the appropriate funds in their retirement plan.

Anna Helhosky: This is pretty remarkable, and student loan borrowers will definitely want to take advantage of this when they can. Secure 2.0 also pushes back the age at which you must start withdrawing money from IRAs, 401(k)s, and most other retirement savings accounts. In the previous legislation, the age had already been lowered from 70 and a half to 72 years. This year it will shift from 72 to 73 years. By 2033, people born in 1960 and later will be 75 years old.

Sean Piles: This update illustrates some of the criticisms of the pension changes, namely that many of the benefits go to those who are richer and older.

Anna Helhosky: Right, and this is very true, and people who will also be able to access retirement benefits already.

Sean Piles: But there is good news for ordinary people as well. Next year, people will be able to withdraw up to $1,000 from their 401(k) and IRA accounts to cover certain financial emergencies without paying a penalty. Usually for early withdrawal of funds from such accounts you have to pay a penalty of 10%. One catch is that the money must be paid back within three years if you want to make another emergency withdrawal without penalty.

Anna Helhosky: Last year we saw a sharp fall in the consumer savings rate, so this could be a much-needed lifeline to help people cover emergency expenses without running into costly credit card debt. Also next year, people with money left in the 529 Education Savings Account will be able to transfer at least some of it to a Roth IRA account. The beneficiaries of these accounts will be able to roll over up to $35,000 for their lifetime.

Sean Piles: And here is one of the most significant changes in how people register retirement accounts. In 2025, automatic registration of new pension plans will come into effect. This means that employees whose employers open a 401(k) or 403(b) retirement account will be automatically enrolled in those plans. Employers can also automatically enroll workers in emergency savings accounts, which will function similarly to retirement savings accounts.

Anna Helhosky: We’ve just looked at a number of changes to how people can save and spend their retirement savings, and we haven’t even covered all of the upcoming changes. This is good news for workers whose employers provide retirement plans. Unfortunately, many workers don’t, and the Safety Act 2.0 doesn’t help them.

Sean Piles: But beyond what happened at the end of 2022, the new year also brought a number of changes to retirement accounts and other savings vehicles. The IRS previously announced an update to the maximum annual contributions to retirement accounts in 2023. For example, employees with 401(k), 403(b), 457, or federal savings plans can now contribute up to $22,500 to their retirement accounts. Accounts.

This is almost 10% more than what was allowed in 2022. In addition, there is a higher catch-up limit for those over 50 that will save them up to $30,000 starting this year. IRA contribution limits increased by more than 8% to $6,500 in 2023.

Anna Helhosky: There are also some changes regarding health savings accounts or HSAs. If you are enrolled in a high deductible health plan, the amount you can put in your savings account increases. It increases by $200 for individuals and $450 for families.

Sean Piles: People in retirement age or close to it already have something for them. Social Security benefits are expected to receive an 8.7% living wage adjustment in 2023, the largest since 1981. Medicare Part B premiums and deductions will also become cheaper for the first time in a decade. Insulin and vaccines will also be cheaper.

Anna Helhosky: Sean, we just went over a lot of information about changes in retirement savings. If you have any questions about saving for retirement or anything else related to money, really leave us a voice message or email us at the Nerd hotline at 901-730-6373. This is 901-730-NERD. You can also email us at [email protected] Visit nerdwallet.com/podcast for more information on this episode. And don’t forget to subscribe, rate and review us wherever you get this podcast.

Sean Piles: This episode was produced by Anna and me with the help of Liz Weston. Audio wizard Kaylie Monahan mixed our audio and Anna wrote our show notes. Here is our short disclaimer. We are not financial or investment advisors. This nerd information is for general educational and entertainment purposes and may not apply to your specific circumstances.

Anna Helhosky: And with that said, until next time, call the Botanists.

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