Big changes to 401(k) Retirement Plans

Big changes are coming to 401(k) Retirement Plans. Are you ready?


Tucked inside the $1.7 trillion omnibus bill passed by Congress and Signed into law by President Biden on Friday December 23, 2022 are big changes to the 401 (k) retirement plans. These changes (Secure Act 2.0) are intended to boost retirement savings for low and middle-income workers.

Here are some of the major changes to 401(k) retirement plans starting in 2023:

Raises age to 75 for mandatory withdrawal

Earlier people with 401(k) plans must take out money from their accounts starting at age 72, to ensure they use the money rather than pass it down through their estates. The new law would increase that mandatory age to 73 starting in 2023 and then 75 starting in 2033.

Automatic enrollment

Starting in 2025, most businesses who start new retirement plans would be required to automatically enroll employees into 401(k) plans. Employees would contribute 3 to 10 percent of their wages. Each year, the contribution would increase by 1 percent until it reaches 10 percent, though not more than 15 percent.

Businesses with 10 or fewer employees and businesses that have been open for less than three years would be exempt.

Student loan matching

The employees who are paying off their student debt typically do not contribute or contribute less to 401(k). To help such employees, the law would allow employers to contribute to 401(k) plans for an employee making student debt payments.

Emergency withdrawals

Early withdrawals from a 401(k) plan come with a 10 percent tax. Under the new law, a person would be able to make one penalty-free withdrawal for unexpected expenses arising from family or personal needs. One such withdrawal of up to $1,000 would be allowed per year.

Emergency savings account

The law would give employers the option of offering their low-paid employees a savings account linked to their long-term retirement plans. The employers could also automatically opt employees into the savings accounts, contributing no more than 3 percent of the employee’s salary. The account would be capped at $2,500, and additional money would be routed into the retirement account.

529 Plan Changes

The law would allow people to roll up to $35,000 from 529 plan accounts into Roth IRAs. That would be available only for accounts in existence for at least 15 years and would be subject to Roth contribution limits.

Savers Credit

To encourage people with low and moderate incomes to save in retirement accounts, the law restructures a tax credit available to certain workers. The government would put up to $1,000 annually into the retirement accounts of eligible workers starting in 2027, regardless of whether they have an income tax liability.

Extra Catch-up contributions

The law would allow older workers to make extra catch-up contributions to 401(k) accounts. In 2023, people 50 and older will be able to contribute an extra $7,500 a year to these accounts. The catch-up amount would increase to $11,250 a year for people 60 to 63 starting in 2025.


These changes are the result of bipartisan efforts in the congress to address the issue of lack of retirement planning for the majority of Americans. These provisions would increase the savings Americans are putting aside for retirement.

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