A budget plan for 2023 was ultimately put together by the US Congress just before 2022 came to a close and was approved by both chambers as well as President Joe Biden that could affect your 401(K) and IRA.
The $1.7 trillion federal budget package for 2023 prevents a partial shutdown of the government and includes significant changes to the regulations for retirement accounts such as 401(k) plans, IRAs, and Roth IRAs.
What is 401(K)?
The Secure 2.0 Act of 2022, which includes these new retirement law adjustments, is a continuation of the Secure Act of 2019 reforms (“Secure” standing for “Setting Every Community Up for Retirement Enhancement”).
The raising of catch-up restrictions for those over 60 and the raising of the age for required minimum distributions are the two greatest changes affecting the majority of Americans with retirement accounts.
However, the massive spending package includes more than 90 distinct retirement adjustments in total. Following Biden’s signature, some changes to retirement accounts will go into effect right now, while others won’t be implemented until 2024.
Contribution Limits For 401(k), IRA
In accordance with IRS regulations, individuals 50 and older are currently eligible to contribute an additional $1,000 annually to their retirement accounts. Older Americans will be able to contribute an additional amount that is adjusted to inflation beginning in 2024 rather than a flat $1,000 more.
They will soon be able to contribute even more catch-up money for those who are 60 to 63 years old. Seniors will be able to contribute up to $10,000 a year starting in 2025, which is 50% higher than the regular catch-up contribution for people 50 and older. Beginning in 2025, those enhanced contribution limitations will also be inflation-indexed.
Instead of a nonrefundable tax credit, those who are eligible for the Saver’s Credit would get a federal matching contribution to a retirement account under the new law, which will repeal and replace the IRA tax credit, often known as the Saver’s Credit. Beginning with the 2027 tax year, the tax code will be changed.
Read more: How could US inflation determine your chances of receiving financial assistance next year?
