The idea of saving for retirement has been around for a long time, but the way we save has changed significantly. Most people can no longer count on a pension, and longer life expectancies and rising costs are making retirement costlier than ever. So we now focus more upon personal savings and set higher savings goals than generations past.
As our savings strategies change, the laws regarding our retirement accounts also have to change to keep up. Here are three new rules that went into effect at the start of 2023 that you may not have heard about.
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1. Contribution limits are up
Retirement accounts have annual contribution limits that dictate the maximum you can put in one of these accounts each year. These limits rise every so often to keep up with inflation.
In 2022, you could only contribute up to $6,000 to an IRA and $20,500 to a 401(k) if you were under 50. Adults 50 and older could contribute up to $7,000 and $27,000, respectively. But as of 2023, you may contribute up to $6,500 to an IRA and $22,500 to a 401(k) if you're under 50 or $7,500 and $30,000, respectively, if you're 50 or older.
Health savings account (HSA) contribution limits have also risen from $3,650 for those with a qualifying individual health insurance plan in 2022 to $3,850 in 2023. Those with qualifying family plans may contribute up to $7,750 -- a $450 increase over last year. Adults 55 and older may add another $1,000 to these limits.
2. Required minimum distributions start later
Required minimum distributions (RMDs) are mandatory annual withdrawals that all seniors must take from their retirement accounts, except Roth IRAs. The government makes you do this so it can collect its share of your retirement savings while you're still alive (the taxes). You owe it a cut since it gave you a tax break on your contributions in the year you made them.
In 2022, you had to begin RMDs in the year you turned 72, but now you can wait until the year you turn 73 before you take your first one. This can help you grow your savings for longer before you have to take your money out.
The penalty for failing to take RMDs has also dropped from 50% of the amount you should have withdrawn to 25%. But that's still pretty high. So make sure you withdraw at least enough from your retirement accounts in 2023 to avoid this if you're legally obligated to take an RMD.
3. Easier workplace retirement plan enrollment for military spouses
The SECURE 2.0 Act, passed at the end of 2022, includes a new tax credit for employers that encourages them to allow military spouses to become eligible for participation in the workplace retirement plan within two months of employment. To claim the credit, employers also have to make military spouses eligible for any matching or nonelective contribution that a regular employee would be eligible for after two years of service and allow immediate vesting for military spouses.
These rule changes should make it easier for military spouses, who may move around too frequently to take advantage of workplace retirement plans, to save for their future. But to be clear, employers aren't required to offer this. The new law only incentivizes them to do so. Military spouses taking a new job should ask the employer what their rules are regarding retirement plan participation.
These rule changes may not all apply to you, but they're still worth keeping in mind. Things like annual contribution limits and the age RMDs begin will continue to change over time. Checking these rules annually can help you avoid surprises.
