House passes bipartisan retirement bill—here's what it would mean for you if it becomes law (via CNBCMakeIt)
By making it easier and cheaper for small businesses to offer 401 plans, if the bill becomes law, "millions more people, hypothetically, should have access to the ability to save at work," says Park.
The bill would also allow more part-time workers to participate in 401 plans. Currently, employers generally can exclude people who work less than 1,000 hours per year from its defined contribution plan. But with the new bill, "any employee who has worked for you for at least three years and at least 500 hours a year is now able to participate in your retirement plan," says Park.
This is key, says Park, because investing in a 401 is "the most effective way to get people to save for retirement."It offers significant tax advantages.The money is automatically taken from your paycheck before you have the chance to spend it. That makes it a painless way to save for the future. The idea is that, over time, your money will grow and compound until you can start withdrawing it at age 59½. If you withdraw before then, you usually have to pay a penalty.Employers will match whatever contribution you put towards your 401 up to a certain amount. For example, if you choose to put four percent of your salary into your account, your employer will put that same amount in as well, in effect doubling your contribution.
The Senate still has to pass the bill and then the president would have to sign it into law. Still, when it comes to changes in the retirement system, "this is truly the biggest thing we've seen in many years," says Oullette.
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