New Retirement Savings Rules for 2023

The $1.7 trillion spending bill that passed in December 2022 contains some significant rule changes to retirement accounts. These rule changes include not only changes to retirement accounts themselves but also to Social Security benefits and 529 plans. The purpose of the changes, according to lawmakers, is to help Americans “save more for retirement and leave their retirement savings untouched and untaxed for longer.”

Changes to retirement plans

Types of retirement plans include Individual Retirement Accounts (IRAs) and 401(k) plans, which are usually provided by employers. These plans differ in many ways, but the most important differences are tax advantages and contribution limits.

Contribution limits

There are limits on how much a person can contribute to their retirement account before they retire. Workers over 50 can contribute more than younger people.

These limits have changed in 2023:

The contribution for 401(k) plans has increased from $20,500 to $22,500. Older workers (50 and up) also now have a catch-up provision, allowing them to contribute an additional $7,500 per year, bringing their limit up to $30,000 per year.
The contribution for IRAs has increased from $6,000 to $6,500.
The IRA contribution for workers 50 and older has increased from $7,000 to $7,500.

Age when withdrawal must begin

The government has set an age when withdrawals from tax-deferred retirement accounts (both IRAs and 401(k)s) must begin. This prevents taxpayers from never withdrawing from these accounts and thus never paying taxes on them.

In 2023, the age when people must withdraw from tax-deferred retirement accounts has changed from 72 to 73.
Starting in 2024, those with Roth IRAs won’t need to make withdrawals at any specific age.

Changes to employer-provided 401(k) accounts

Because of the wave of early withdrawals from employer-provided 401(k) accounts in 2020 due to the pandemic, in 2023, there have been some significant changes to these kinds of accounts.

Automatic enrollment

Employers who create new 401(k) plans for their workers can automatically enroll them.

Emergency withdrawals

Starting in 2024, workers under 59 ½ can withdraw up to $1,000 annually without a 10% penalty. (Workers over 59 ½ could already do this.)

Emergency savings accounts

Employers can also automatically enroll workers in emergency savings accounts, and even if a worker is under 59 ½, they don’t pay the 10% penalty when withdrawing funds from these accounts.

Amount of contributions

The combined contributions of an employee and employer in 2023 have risen from $61,000 to $66,000.

Changes to Social Security

The new changes include earnings limit changes for both workers under retirement age and those at full retirement age.
Earnings limit for workers under retirement age
If someone is under their retirement age, they can get Social Security retirement benefits, but if they earn over a certain limit, those benefits will be reduced.

(If a person is born after 1960, the Social Security retirement age is 67. If they are born between 1955 and 1959, a person’s Social Security retirement age will be between 66 and 67.)
In 2022, the earnings limit amount was $19,560. In 2023, the limit was raised to $21,240.

Earnings limit for those at full retirement age

In the year that a person reaches full retirement age, the amount they can earn before their benefits are reduced has increased to $56,520. (These earnings are counted up to the month the person reaches full retirement age. After that, a person can earn any amount and still get their full benefit.)

Changes to 529 plans

In 2024, people will be able to roll over funds left from a 529 account into a Roth IRA. For example, if a child has finished college but hasn’t used all the money a parent saved for them in a 529 plan, the parent will be able to put that remainder into a Roth IRA for the child.

Key takeaways

In 2023, the amount of contributions to retirement plans has increased, the age when withdrawal from those accounts must begin has increased, and there have been changes to employer-provided 401(k) accounts, which allow for emergency savings. In addition, earnings limits for full Social Security benefits have increased. The purpose of these changes is to make it easier for people to save for retirement.

New retirement savings rules for 2023