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Retirement Account Changes: How New Rules Will Impact Your IRA and 401(k)

The congressional spending bill for 2023 includes more than 90 changes to retirement account rules.

A picture of the US Capitol building in front of a spread of US currency including $1, $5, $20 and $100 bills
The 2023 omnibus spending bill became law at the very end of 2022.
Douglas Rissing/Getty Images

After much debate and many delays, the US Congress agreed on a $1.7 trillion spending bill for 2023 to avoid a partial government shutdown. Along with keeping the federal government operational, the law, signed by President Joe Biden on Dec. 29, 2022, also makes significant changes to the rules for retirement accounts like 401(k) plansIRAs and Roth IRAs.

These new changes to retirement regulations follow in line with the amendments of the Secure Act of 2019 ("Secure" being short for "Setting Every Community Up for Retirement Enhancement") and are collectively called the Secure 2.0 Act of 2022.

The biggest changes for most Americans with retirement accounts are the extension of the age for required minimum distributions and increased "catch-up" limits for people over 60. But there are more than 90 different retirement changes overall in the giant spending package.

With Biden's signing, some retirement account changes will take effect immediately, while others will start beginning 2024. Here's what you need to know.

What are the new rules for required minimum distributions, or RMDs, in 2023?

Currently, Americans must start receiving required minimum distributions from their 401(k) and IRA accounts starting at age 72 (or 70 and a half if you turned that age before Jan. 1, 2020). The Secure 2.0 Act of 2022 raises the age for RMDs to 73, starting on Jan. 1, 2023, and then further to 75, starting on Jan. 1, 2033. (Roth IRAs are not subject to RMDs.)

The new rules also reduce the penalty for failing to take RMDs. The previously steep 50% excise penalty will be reduced to 25%, and lowered further to 10% if the error is corrected "in a timely manner." The penalty reductions take effect immediately, now that Biden has signed the law.

What are the new contribution limits for 401(k) plans and IRAs?

While the standard limits for contributions to 401(k) plans and IRAs won't change, the law will boost the "catch-up" limit for Americans over 50 and introduce additional potential "catch-up" contributions for those older than 60.

IRS law currently allows people 50 and up to contribute an additional $1,000 to their retirement accounts each year over the standard limit. Starting in 2024, instead of a flat $1,000 more, older Americans will be able to contribute an additional amount that is indexed to inflation.

Now, for people aged 60-63, they will soon be able to contribute even more catch-up money. In 2025, those seniors will be allowed to contribute up to $10,000 per year or 50% more (whichever is greater) than the standard catch-up contribution for those 50 and up. Those increased contribution limits will also be indexed with inflation starting in 2025.

How is the IRA tax credit changing?

The new law will repeal and replace the IRA tax credit, also known as the "Saver's Credit." Instead of a nonrefundable tax credit, those who qualify for the Saver's Credit will receive a federal matching contribution to a retirement account. This change in tax law will start with the 2027 tax year.

Congress also amended the IRS laws for retirement account rollovers from 529 plans, which are tax-advantaged savings accounts for higher education. Currently, any money withdrawn from a 529 plan that's not used for education is subject to a 10% federal penalty.

Beneficiaries of 529 college savings accounts will be allowed to roll over up to $35,000 total in their lifetime from a 529 plan into a Roth IRA. The Roth IRA will still be subject to annual contribution limits, and the 529 account must have been open for at least 15 years.

What are the new rules for early withdrawals from retirement accounts?

The Secure 2.0 Act of 2022 includes several rule changes that will benefit Americans who need to withdraw money early from their retirement accounts. Normally, withdrawals from retirement accounts made before the owner of the account reaches 59 and a half years old are subject to a 10% penalty tax.

First, Congress added a basic exception for emergencies. Account holders who are younger than 59 and a half can withdraw up to $1,000 per year for emergencies and have three years to repay the distribution if they want. No further emergency withdrawals can be made within that three-year period unless repayment occurs.

The new law also specifies that employees will be allowed to self-certify their emergencies -- that is, no documentation is required beyond personal testimony. The law will also eliminate the penalty completely for people who are terminally ill.

Americans impacted by natural disasters will also get some relief with the changes. The new rules will allow up to $22,000 to be distributed from employer plans or IRAs in the case of a federally declared disaster. The withdrawals won't be penalized and will be treated as gross income over three years. The rule will apply to all Americans affected by natural disasters after Jan. 26, 2021. 

The new retirement rule changes will also let those with accounts make early withdrawals from 403(b) plans similar to 401(k) plans. Currently, unlike with 401(k)s, hardship withdrawals from 403(b) accounts only include employee contributions, not earnings. Starting in 2025, the rules for hardship withdrawals will be the same for 403(b) and 401(k) plans.

How can paying off student loan debt soon help save for retirement?

One of the more revolutionary changes included in the Secure 2.0 Act of 2022 is the option for employer plans to credit student loan payments with matching donations to 401(k) plans, 403(b) plans or Simple IRAs. Government employers will also be able to contribute matching amounts to 457(b) plans.

This means that people with significant student loan debt can still save for retirement just by making their student loan payments, without making any direct contributions to a retirement account.

The new regulation will take effect in 2025.

What are retirement account changes for employers?

The retirement account rule changes in the Secure 2.0 Act of 2022 will impact employers at least as much as employees. The biggest change for companies will be that, starting in 2025, any new 401(k) or 403(b) plans must automatically enroll workers who don't opt out. 

Contributions from workers automatically enrolled will start at a minimum of 3% and a maximum of 10%. Each year after 2025, those amounts will rise 1% until they reach a range of 10% to 15%. Retirement plans created before 2025 will not be subject to the same requirements.

The retirement rule changes will also give employers the opportunity to offer employees "pension-linked emergency savings accounts" that will act as hybrids between emergency and retirement savings. Employers can automatically enroll workers at up to 3% of their salary, with a contribution cap of $2,500. 

Contributions to these emergency accounts will be taxed like Roth contributions and will qualify for employer matching. Employees can make four withdrawals per year from the account with no penalty or additional taxes. If they leave the company, they can withdraw the emergency account as cash or roll it over into a Roth account.

Other changes for employers will allow companies to automatically transfer a participant's IRA into a retirement plan at a new employer unless the participant explicitly opts out. The Secure 2.0 Act will also provide administrators of retirement plans the option of deciding not to recoup overpayments accidentally made to retirees, and it enacts protections and limitations for retirees if companies do decide to take money back.

More information for 401(k) and IRA contributors

The Secure 2.0 Act of 2022 will introduce several broad changes for retirement in America in general. One of the biggest will be a mandate for the Department of Labor to create a national, searchable database of retirement plans to help people find lost or misplaced accounts. The agency will be required to launch the database within two years.

The Employee Retirement Income Security Act of 1974 will also get an update. ERISA establishes minimum standards for administrators of private retirement plans, including communication with participants. 

The ERISA rule change will require private retirement plans to provide participants with at least one paper statement a year unless the participant opts out. The rule won't take effect until 2026, however, and won't impact the other three quarterly statements required by ERISA.

For more about retirement, get answers to all your Social Security questions, including if you can receive benefits while you're still working.