What are the big changes coming to 401k in 2023?
The retirement savings plan is to be updated by Congress as part of next year’s spending bill including automatic enrollment and mandatory distributions.
The most well known change to the 401k retirement plan at this stage is the increase of the contribtution limits.
The IRS will increase the contribution limit by $2,000 to $22,500 for 2023. Workers who are saving for retirement with 401(k), 403(b), most 457 plans, and the Thrift Savings Plan can contribute up to $22,500 to those plans in 2023.
However, it isn’t just the contributions limits that are increasing. Plans inside the latest yearly spending bill for 2023 set to make a few key changes to the retirement plan that look set to make it easier for workers to save money for their future life.
What are some of the biggest changes?
Automatic enrollment would begin from 2025 and workers would contribute up to ten percent of their earnings. This is similar to a system in the United Kingdom called ‘National Insurance’ though this is used for pensions.
Workers earning less than $71,000 per a year would receive a 50 percent top up to $2,000 from the federal government.
Measures will be introduced to help Americans who need money taken out from the savings pot at short notice and also those with no savings. Provided one withdrawal a year of $1,000 was repaid there would be no penalty charges. In terms of emergency savings employers will be able to offer low-paid employees a savings account thast uses 3% of their salary, capped at $2,500.
The age for mandatory distributions would rise to 73 from next year and 75 in 2023, up from 72 now.