Congress wants to change how you save for retirement. Here’s what you need to know.

Americans could soon change the way they save for retirement thanks to several reforms included in the $1.7 trillion spending bill. Approved by House of Representatives lawmakers last week.

In addition to funding federal agencies through September 2023, the spending bill also touches on everything from emergency Aid to Ukraine Into America’s Retirement Gap. The latter stems from the pension bill passed earlier this year the Secure 2.0 Act, which was included in the omnibus spending bill in the House with broad bipartisan support.

On Wednesday, policy analysts at investment bank Raymond James said the measure would make “the most significant changes to the U.S. retirement savings system in decades.” These changes come as almost half of older workers lack retirement savings and many who spend money for their golden years are far from their goals. And Americans believe they need savings $1.25 million a typical retirement account to live comfortably in retirement is less than $87,000.

“It’s really positive that this bill will encourage retirement savings and help those who may not have the opportunity to put money elsewhere,” Lisa Featherngill, Comerica Bank’s national director of wealth planning, told CBS MoneyWatch.

Here are some of the key changes in store for American retirement savers.

Employers can match student loan payments

Companies can treat their employees’ student loan payments as elective deferrals to their retirement accounts, which will allow employers to make matching contributions to their 401(k). This provision will help workers who are not saving much for retirement because of college debt.

“It says that the loan payments you make up to a certain point count as if you put that money into a retirement plan,” Featherngill said.

That would help younger workers struggling with loan payments start building retirement savings earlier, he predicted.

50% pension match for $2,000 in savings

The bill would also expand the Saver’s Credit, a nonrefundable tax credit, by making it a direct federal contribution to the retirement accounts of low- and moderate-income workers.

Under the plan, employees who earn below a certain income threshold and contribute to the pension plan
50% eligible for government contributions up to $2,000. Income limits are $35,500 for single taxpayers and $71,000 for married taxpayers.

While a $1,000 match may seem like a small benefit, the impact can be powerful over time, experts say. “If you start early, the impact of interest rate increases can be significant,” Featherngill said.

Defer mandatory withdrawals until age 75

The bill would also change the law on required minimum distributions, or RMDs, which are the amount of money retirees must withdraw each year.

Currently, people must start taking RMDs at age 72, but the bill would raise that age to 73 in January 2023, 74 in 2030 and 75 in 2033.

It would give older Americans more flexibility to delay when they want to start drawing down their retirement assets, but it drew some criticism from tax experts who said the provision would benefit more wealthy retirees.

According to a Dec. 16 letter from 45 organizations to Congress, the change would “primarily help the wealthy shield their income from taxes for longer and create more wealth for their heirs.”

“Early retirees” can save more

Older workers who are just a few years away from retirement, or “early retirees,” could increase their retirement savings under the bill.

People in their early 60s will be able to increase their annual savings from the current $6,500 to $10,000 starting in 2025.

The provision has also drawn criticism for mainly helping high-income workers. “This only helps a few cash-strapped workers to take advantage of the new higher limits,” the Dec. 16 letter said.

Automatic 401(k) enrollment

Another big change, he said, is that professionals can have employees contribute to 401(k) or 403(b) plans. Starting in 2025, new pension plans must automatically enroll workers. Plans must enroll in contributions of between 3% and 10% of their income, increasing by 1% (up to 15%) each year, unless employees opt out.

“The participant can opt out and they can change the percentage, but a plan has to have that provision to qualify as a 401(k) plan,” Featherngill said.

529 turning

According to Raymond James, starting in 2024, people with 529 college savings accounts in their name will be allowed to transfer up to $35,000 directly into a Roth IRA account. These rollovers must be open for at least 15 years and subject to IRA annual contribution limits.

However, Tim Steffen of investment bank Baird noted in an email that there are “a lot of misconceptions” about the impact of the 529 changes. “The details are not as generous as the headlines make them seem,” he said.

What’s in the $1.7 trillion spending bill the House passed


Editor’s note: This article has been updated to reflect that the Saver’s Loan will provide a 50% match for up to $2,000 in savings or a $1,000 match. The article previously stated that the match was $2,000.

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