We always have retirement planning and savings on our minds at Montgomery Financial Partners. Lately, the federal and Maryland state governments have been thinking about it as well. In a CNBC report from last fall, only 41% of Americans felt they would be financially ready for retirement. And, one of the questions I deal with most often is clients wondering what they need to do to be financially ready for retirement. While the IRS increased the 401(k) contribution limit to $20,500 this year, the House, Senate, and Maryland government are working towards making sure more Americans are saving and ready for retirement. Here’s a brief overview of what is happening.
House Bill SECURE 2.0
Last month, the US House of Representatives passed the SECURE 2.0 bill, which changes a lot more than contribution limits for 401(k) and 403(b) accounts. The bill mandates automatic enrollment of all eligible workers in retirement plans, with 3% of their salary directed into the account. That rate would rise by 1% a year until it reaches 10%. Right now, most employees have to opt into a 401(k) plan. The bill would also make retirement plans available to part-time employees who work about 10 hours a week for two years.
For those who saved less or didn’t have access to a 401(k) plan earlier in their career, catching up on savings is a good place to start. Currently workers between 62 and 64 can add $6,500 a year to their accounts. The House bill would increase this to $10,000 a year. People would also be able to begin taking money from employer-sponsored accounts at age.
Senate Bills May Change Retirement Planning in 2022
While the House passed the SECURE 2.0 bill, the Senate has three different bills with proposed changes to 401(k) and 403(b) accounts. Although all the proposals are not finalized, the Senate doesn’t seem to favor the idea of auto-enrollment and expanding access for retirement planning to small businesses and start-ups. We will wait to see what happens, but CNN points out that the Senate should do something. “Nearly 70% of private industry workers have access to a 401(k) account, but only 50% use it, and less than 40% of lower-paid workers have any retirement accounts at all,” they write.
Maryland Tax Law Impacts Retirement Income
In April 2022, Maryland Governor Larry Hogan signed a tax cut package that impacts current retirees. According to the Governor’s website, the “Retirement Tax Elimination Act provides relief for retirees 65 and older making up to $100,000 in retirement income, and married couples making up to $150,000 in retirement income.” WMAR news reports that this change, scheduled to take effect in July, will impact 80% of retirees in Maryland. The State also suggested that some Maryland retirees will not owe income tax.
At Montgomery Financial Partners, we will continue to keep an eye on these developments and let you know how they impact your savings and the 401(k) plans for your employees. Feel free to reach out with any questions you may have.
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