5 Big Retirement Changes for 2023

by Nilus Mattive
By Nilus Mattive

For more than two decades now, I’ve been helping Americans save, plan and invest for their retirements.

And over that time, lawmakers have constantly been changing the rules of the game.

In many instances, those changes have been for the worse.

For example, years ago right here at Weiss Ratings, I helped popularize a series of Social Security strategies that people could use to boost their total benefit payments. Countless readers used those strategies as did my own parents.

Then, Washington decided to shut them all down.

It was the same thing with the so-called stretch IRA strategy, which went away after the SECURE Act went into law back in 2019.

Basically, you used to be able to leave a Roth IRA to any beneficiary and they could slowly unwind the account over the rest of their life. In many cases — and with good investments and planning — they could even keep the account growing tax-free and pass it along to an heir of their own down the line!

Now, non-spousal beneficiaries have to withdraw all the money from inherited Roth IRAs within 10 years. On top of that, if the account is worth more than $400,000, they’re forced to take all the distributions over just a five-year period.

That change singlehandedly ruined a lot of Americans’ long-term retirement plans!

So when Congress recently passed SECURE 2.0, I was bracing myself for more bad news.

All told, there are 90 different provisions to get people to save more, improve current retirement rules, and lower costs for employers to set up retirement plans.

But for once, all the major components look like positive developments.

Here are the five biggest highlights you need to know about …

Change No. 1: Catch-Up
Contributions Get a Boost

Under current law, anyone age 50 or older can make a catch-up contribution to various retirement plans.

For 401(k) plans, the limit was $6,500 for 2022. In 2023, that figure has risen to an inflation-adjusted $7,500. Those amounts are in addition to any regular 401k contributions, which also went from $20,500 last year to $22,500 for 2023.

Now, beginning Jan. 1, 2025, those age 60–63 can make even bigger catch-up contributions to their workplace plan of up to $10,000 … or 150% of the regular contribution, whichever is greater. In future years, these amounts will continue rising on an inflation-indexed basis.

Meanwhile, for IRAs, the 2022 contribution limit of $6,000 rises to $6,500 for 2023. Under SECURE 2.0, that number will also be indexed to inflation and continue increasing every year going forward starting in 2024.

Change No. 2: Matching Contributions
Now Possible for Roth 401(k)s

Currently, when employers provide their workers with a matching contribution, it must be made to a traditional 401(k) account. That means those matches are subject to taxation when withdrawn in retirement.

Now, employers can (but do not have to) make matching contributions to Roth retirement plans as well. Just note that the money is treated as taxable income upfront like any other Roth contribution.

Also, starting in 2024, retirement plan participants with wages over $145,000 must make their own catch-up contributions to Roth plans for a retirement plan to maintain its tax-favored status. This could create some wrinkles for both participants and employers in the future.

Change No. 3: Required Minimum
Distribution Changes

Under current law, required minimum distributions — amounts that must be withdrawn annually from certain retirement accounts — begin at age 72.

SECURE 2.0 changes that to age 73 in 2023 and then to age 75 in 2033. The penalty for failing to take these RMDs will also change, dropping to 25% of the amount that should have been withdrawn from the current 50%.

Another big change is that Roth versions of 401(k)s and other employer-sponsored plans will be exempt from RMDs starting in 2024. This gives them the same treatment that Roth IRAs have always enjoyed.

Change No. 4: Allowing Employers
to Match Student Loan Payments

I have been unapologetically against the student loan bailout proposal that is currently tied up in the courts.

However, there is no doubt that many Americans, especially younger workers, are having a hard time saving because they need to make monthly student loan payments. The average monthly student loan payment is roughly $400.

In recognition of this fact, one of SECURE 2.0’s provisions allows employers to offer matching retirement contributions to employees who are paying off student loans. Essentially, the student loan payments are treated as if they were being put into the company’s retirement plan for matching purposes.

Since using this provision is completely voluntary on the company’s part, I think it’s a great idea.

Change No. 5: Automatic
Retirement Plan Enrollment

Just half of American households are currently enrolled in a retirement plan of any kind, according to the Federal Reserve. That’s about the same rate as in 1998.

Now, 401(k) and 403(b) plans are required to automatically enroll participants in the plans upon becoming eligible.

The initial automatic enrollment amount is at least 3% but no more than 10%. That amount increases by 1% each year until it reaches 10%.

However, companies with existing retirement plans are not mandated to automatically enroll employees, and companies with fewer than 10 employees are exempt from the rules as well.

More importantly, employees can still opt out of coverage as well. This simply shifts the action from opting in to opting out.

Other Changes & One Big Elephant in the Room

Given all its moving parts, there would be no way to cover every single change taking place under SECURE 2.0 in a short article like this.

However, among other things, the legislation also makes it easier and less costly for small employers to open retirement plans along with many other incremental improvements to our country’s private retirement system.

Of course, it does absolutely nothing to address the major (and long-standing!) problems in our public retirement systems — whether you’re talking about state and local pension plans or Social Security.

So by all means, take advantage of all these new provisions as you plan for retirement because it looks like we will only become more reliant on our own nest eggs in the years to come.

And know that I’ll continue doing everything I can to help you meet your personal goals as things keep shifting in the future.

Best wishes,

Nilus

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About the Contributor

Nilus Mattive is the editor of Weiss Ratings’ flagship Safe Money Report and also its Weekend Windfalls service, which is dedicated to generating up to $1,000 a week through the process of selling options.

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