George Kamel - Here’s How Your 401(k) Is About To Change

Episode Date: October 25, 2023

There are some changes on the horizon for your 401(k)s—shout out, Congress for keeping things fresh. Here’s what you need to know and when it’s happening. Links:  Make Your Brain Your Friend Today With BetterHelp All about the Secure Act 2.0 Learn more about Ramsey Financial Coaching EveryDollar Budget Deal: I love a good deal, when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Learn more about your ad choices. Visit megaphone.fm/adchoices

I know there's a lot dividing our nation these days, and I'm not even talking about state lines. Get it? State lines? Just pretend like you sleep. Dividing our nation? Just pretend like you were sleeping. Because, okay. But hey, at least we can all unequivocally agree that our retirement plans could use a little more congressional meddling.

Am I right? Guys? Where are you going? You can't leave. You're paid and forced to work on this YouTube channel. Come back. Get back in here. I will not be back for many days.

Well, like it or not, Congress got together again at the end of last year and changed just enough to your retirement plans that you need to pay attention. But I got you. No worries, fam, we're going to get through this, okay? You see, way back in 2019, Washington tried to encourage more Americans to save for retirement using things like 401Ks by passing the Setting Every Community Up for Retirement Act, aka the Secure Act. Because, spoiler alert, we Americans have a savings problem. and the government has an acronym problem.

Who's coming up with this stuff? I mean, you've got to wonder how much government payroll and wasted meetings it took to get to that terrible acronym. Hire me. I'll help you. No, we're good, thanks. Now, fast forward to the end of 2022. Chat GPT has just entered the chat. The Swifties were suing the ERAs pre-sale fumble,

and the Secure Act got a glow up when the 2.0 update was signed into law. Now, some of these changes went into effect in 2023. Some are coming up in 2024, and some won't even show up until 2025 or later. So today, we're covering the seven biggest changes to your 401K that are coming down the road. And because these new 401K rules could have a moderate to severe impact

on our future finances, I, for one, am pretty invested in understanding them. Get it? Invested? Oh, brother, this guy stinks! Okay, tough crowd. But first, let's kick things off with an obligatory PSA. Be a pal, hit the like button,

and share this video with your friends who just want to make an Arab American Boys dream come true. All right, new rule number one. Starting in 2025, most employers will be required to automatically enroll all eligible employees into their 401 plan. No ifs, ands, or buts about it. And they'll start employees with a minimum contribution rate of 3%. The idea here is that people are less likely to opt out of their workplace plan than they are

to opt in, which equals more people investing in their 401K. A little reverse psychology. a la the Fed going on there. And honestly, it's not a terrible idea. I mean, if you're out of debt with an emergency fund in place, then you're ready to invest, and this is totally fine. Just make sure you adjust your contributions up from 3% and choose your investments accordingly.

I recommend bumping it up to at least 15% instead of that measly 3 if you want to retire with any semblance of dignity. But the rub here is, if you have debt you're working on paying off, the government just hijacked your payoff plan. Because when you're paying off debt, you shouldn't be investing at all in anything. You need to be throwing all of your money towards eliminating your debt.

Focused intensity on that step. So if that's you, in 2025, you'll need to go in, unenroll, and stop all retirement investing until you've gotten debt out of your life and you've got that emergency fund of three to six months of expenses saved up. Now, I know unenrolling is a slight inconvenience. It'll be about as annoying as canceling your gym membership, but probably with less subliminal shame. I want to quit the gym. All right, new rule number two. Starting in 2024, your company can match your student loan payments with retirement contributions,

and to that I say, interesting. So here's how it works. Let's say you get a new job next year making $100,000, and your employer offers you a 3% match on 401K contributions. But you're still paying off that Canadian studies degree. Why do they offer that? I have no idea. If your employer offers student loan payment matching,

they'll match up to $3,000 of those student loan payments with 401K contributions. Now, this sounds good in theory, but there's a lot of things that were great until people ruined them, like Facebook or Earth, or Price is Right. Looking at you, Drew, you're a nice guy, you mean well, but you're no Bob. Maybe we can all agree on that. Rest in price, Bob. I guess the idea is to incentivize people to pay off their student loans faster, but at $2.50 a month, which is $3,000 a year,

you'll never make a dent in your student loans. And if I'm that person without student loans, looking at my coworker, I'm a little peeve they're getting free retirement money for having gone into debt and staying in debt. What kind of message is that sending to the rest of us? And the last thing you want to do is keep your student loan payments around just to get a 401k match.

So here's a better plan. Focus on paying off your loans as fast as possible so you can get to the point where you're investing way more than that 3%. Now, before we get to the next updated rule, here's a shout out to today's sponsor. Listen, sometimes we know what's good for us, but it feels like we just can't make ourselves do it.

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New Rule number three. As of January 1st of this year, the required minimum distributions age was increased from 72 to 73. And looking a little further down the road, that RMD age is set to rise again to age 75 in 233. And we love to see it. Here's why that's great. You see, before this, you had to take a certain amount of money out of that tax-deferred account and pay taxes on it as soon as you turn 72. That is, right after you cut out an article on birdwatching from today's newspaper

and physically mail it to your sister Barb in Bloomington. But now, you can keep that money cooking in your tax-deferred count a little bit longer, assuming you don't need to take money from it. So it delays the government forcing you to dip into your retirement account, which they want you to do so they get their precious taxes, and it lets your money grow even longer. And pro tip, if you want to avoid this whole tax situation altogether, use a Roth IRA,

because when you invest with after-tax dollars in that Roth IRA, you never have to pay taxes on that money again. New rule number four. Starting in 2024, employees can now make penalty-free withdrawals of up to $1,000 per year for emergency expenses. Say what? Basically, the government wants to make retirement funds easier to get to in case of emergencies without penalties or fees. Now, caveat, you'd have to replace those funds in the next three years before you can make another similar withdrawal.

Now, this might sound like a good idea. But you know what else sounds like a good idea? I'll just get gas in the morning. You know good and well there will be no time in between hitting the snooze button three times and the chaos of getting ready to get gas in the morning. Just do it. Do it now. Trust me. So, think twice, maybe three times before you even. even think about rating your retirement funds for an emergency. And I recommend not thinking about it at all.

Just as often as I think about the Roman Empire, hot take. Rome is eternal. Glory is forever. These are the ideas that make men to men. You see, taking money out of your retirement accounts could cost you thousands of dollars in future investment growth and might lead to a bigger tax bill. So don't do it.

Dipping into that retirement piggy bank should be a last resort to help you avoid bankruptcy or foreclosure. And that's it. It's the nuclear option after you've exhausted every other possible avenue. And to prevent this whole situation in the first place, you need to build your own emergency fund using three to six months of expenses before you start investing in retirement. Once you have it, keep that money tucked away in a high-yield savings account

for relatively easy access. Remember this. Emergency funds are for emergencies. Retirement accounts are for retirement. Capish? Don't make me break out the Italian hand gestures here because I will. Look, I can speak Italian. New rule number five. Starting in 2025, catch-up contribution limits will be raised for older workers. No, not catch-up contributions. That's what Chick-fil-A leaves in your bag, and it's their pleasure.

I'm talking about catch-up. You see, many Americans look up one day and realize they're nearing retirement with nowhere near enough saved. So catch-up contributions help people 50 and older save a little bit more each year. And if that's where you are today, now you get to save even more. So this is great news for older people who are behind on retirement savings. Now for 2023, the catch-up amount for folks age 50 and up is an extra $7,500 annually. But starting January 1, 2025, investors age 60 through 63 can make catch-up contributions of up to $10,000 annually, and that's on top of the standard $22,500 limit. Amazing. That's 10 grand more that can harness the power of compound growth and help you have a ball of retirement. Now, quick caveat, if you make more than $100,000,000,000,000,000,000,000,000,000,000, $1,000,000,000,000,000,000,

$145,000, you won't be able to save as much in cash-up contributions, but that shouldn't stop you from still stowing away as much as you can. Moving on, new rule number six. The savers credit rule is going full-mea Thermopolis, getting a makeover, losing the glasses, and changing its name to Savers' Match. Princess of Genovia. You look ridiculous. You should sue. Now, if you haven't heard of it, the Savers' Credit is a non-refundable credit aimed to help low- and middle-income taxpayers who are saving for retirement. depending on your income and tax filing status, you can claim a 50%, 20% or 10% credit of the first $2,000 you contribute to your 401k and traditional or Roth IRA. And starting in 2027, which

feels like an eternity from now, eligible filers, which are married couples making $71,000 or less, will get a federal match of their contributions worth up to 50% of their savings, but it can't exceed $1,000. That was a lot of numbers, I'll admit, but here's what it means. Let's simplify it. If you are eligible and you invest $2,000,000, the government will give you an extra $1,000. And while that sounds great, $1,000 isn't life-changing. Now, if you qualify, by all means, get your $1,000. What I don't want is for couples to intentionally try to keep their income low just to get an extra $1,000. I mean, you could easily make that extra $1,000 through a side hustle, like dog walking,

house sitting, door dashing, or the newest trend, dog-dashing, my new on-demand business where I deliver good puppachinos to the goodest boys. Finally, new rule number seven, part-time workers will get access to their company 401Ks a little sooner. So the current rules state that part-time workers must be allowed access to 401K plans if they have at least three years of service under their belt and work at least 500 hours. But starting in 2025, the required time employed will drop to only two years, which I think is a great thing. This allows part-time workers like hospitality and retail folks to begin investing a whole year earlier. We love to see that. Okay, admittedly, that was a lot of information of process, and the chances are you still might have some questions about how secure 2.0 impacts you. So I'm going to drop a link to an article that goes even more in depth on this, and you can click that below.

But the bottom line here is, none of these changes will drastically improve or ruin your retirement prospects. Congress can make tweaks and changes all they want. But the truth is, you can't control what happens in the government, but you can control what you do with the money in your bank account today. No matter what decisions the government makes, you have the power to make a plan for your money that's solid. Because like it or not, you're the one responsible for having enough money in retirement. Don't rely on anyone else. No government, no plan. It's on you. And by not making a plan, you're forcing other people to take care of you, whether it's the government, your children, or Barb and Bloomington. And don't put that on her. She's got a lot going on right now.

So take responsibility, make a plan, get on a budget, ditch debt, and take advantage of retirement plans like 4,000. R1Ks and Roth IRAs. So here's what I want to know. Let me know in the comments what your retirement strategy is. How are you going to get there? How do you know if enough is enough? And be sure to share this video with the barbs in your life. Okay, they haven't added easy.

And it will mean more than you ever know. Thanks for watching. We'll see you next time.