Budget makes it easier to save for retirement

The federal spending package unveiled Tuesday includes new provisions that would alter how millions of Americans save for retirement, including older people who want to stash away extra money before they stop working and those struggling under the weight of student debt.

Many of the policy changes in the bill, which is expected to pass this week, will extend help to Americans who can afford to save or have access to workplace plans. But lower- and middle-income workers will receive a new benefit that amounts to a matching contribution — up to $1,000 per person — from the federal government. Another provision will make it easier for part-time workers to enroll in workplace retirement plans.

“It is really meaningful progress,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

“We can’t expect Congress to solve all of our nation’s retirement challenges in one piece of legislation, but this includes a host of provisions that will move the ball forward.”

The changes were included in a bipartisan bill, known as Secure 2.0, which was folded into the vast federal spending package that will keep the government running.

The retirement components build upon a series of changes made to the retirement system in 2019, which cleared the way for employers to add annuities to their 401(k) retirement plans and raised the age that retirees are required to begin pulling money from their retirement accounts.

Here’s a quick look at some of the changes:

Automatic enrollment

Employers — at least those starting new plans in 2025 and thereafter — would be required to automatically enroll eligible employees in their 401(k) and 403(b) plans, setting aside at least 3 percent, but no more than 10 percent, of their paychecks.

Emergency savings

Employers will be permitted to automatically enroll workers into emergency savings accounts, which are linked to employees’ retirement accounts. They can enroll workers so that they set aside up to 3 percent of their salary, up to $2,500 (though employers can choose a smaller amount).

401(k) emergency withdrawals

Employers could choose to provide workers with another emergency savings option: Employees could make one withdrawal, up to $1,000, annually from their 401(k) and IRAs for certain emergency expenses — and they wouldn’t owe the extra 10 percent penalty. The rule takes effect in 2024.

Student debtor match

Starting in 2024, student loan payments would count as retirement contributions in 401(k), 403(b) and SIMPLE IRAs for the purposes of qualifying for a matching contribution in a workplace retirement plan.

Saver’s match

Workers with low- to middle-incomes of up to $71,000 will receive a greater benefit — in the form of a matching contribution from the government — when they save inside an IRA and workplace retirement plan such as a 401(k).

Part-time workers

Legislation passed in 2019 requires employers with a 401(k) plan to permit longer-term part-time employees to participate, including those with one year of service (with 1,000 hours) or three consecutive years (with 500 hours of service).

Catch-up contributions

People ages 60 to 63 would be permitted to set aside extra funds for retirement. Under the current law, people who are 50 or older (at the end of the calendar year) are allowed to make catch-up contributions that exceed the retirement plan limits for everyone else.