Congress sets new rules for employee retirement plans

Jonathan Yahn of Ascensus recently spoke to the Financial Planning Association of Iowa.

By Steve Dinnen

The Employee Retirement Income Security Act of 1974 was rightly hailed as a landmark law that built the framework for defined benefit and contribution plans. Nearly half a century later, Congress has overhauled it with the Secure 2.0 Act, which further delineates minimum standards for the administration of private pension plans and shapes how they are taxed.

The new law has 92 provisions that affect retirement plans, which were created to increase savings. And that’s a good idea: Vanguard estimates the average 401(k) account balance for a worker at age 65 is $279,997, hardly enough to carry you through 20 or more years of retirement. So the rules are being simplified and clarified, and coverage is being expanded.

Jonathan Yahn (pictured), an attorney and ERISA compliance specialist with the Minnesota-based financial services firm Ascensus, was recently in town to talk with the Financial Planning Association of Iowa and spelled out some highlights. Among them:

  • The age for the required minimum distribution (RMD) — the amount you have to withdraw from your account — will bump to 75 from 73 starting in 2033.

  • New plans must automatically enroll employees starting in 2025. The minimum will be a 3% deduction from your paycheck, and that will rise each year until it hits 10%. There are exceptions, and employees can always opt out, but that’s unwise. (Almost a third of employees who are eligible to participate in a 401(k) decline to do so.)

  • Unspent funds — up to $35,000 — from a 529 college savings plan that has been open at least 15 years can be rolled into a Roth IRA in the name of the beneficiary starting in 2024.

  • Catch-up provisions for high-wage earners must be made on a Roth IRA basis starting in 2024.

Speaking of Roth:

  • If you have a simplified employment pension (SEP) plan, you now can also have a Roth.

  • Long-term part-time employees with as few as 500 hours of work in a year now will be eligible to join.

  • People who are at least 70 and a half years old can direct up to $100,000 in distributions per year from a traditional IRA to charity. Starting in 2024, the maximum contribution amount increase will be based on the inflation rate.

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