Contribution limits are rising again for the most tax-friendly account on the market. If neither the taxpayer nor their spouse is covered by a retirement plan at work, their total contribution to a traditional IRA is deductible. The increasing annual contribution limits are great news for anyone who is eligible to use an HSA, as this type of account offers a combination of tax-cutting features that is unrivalled, even for retirement plans such as 401 (k) or individual retirement accounts. The SECURE Act 2.0 legalizes the IRS-backed practice of employers making matching contributions based on employee student loan payments, even if employees are not making contributions to the retirement plan.
As a result, the first group of long-term part-time workers would be eligible to participate in the elective postponement of defined contribution plans starting in January. Matching contributions for student loan payments must be on the same schedule as other matching contributions. Employer matching contributions designated as Roth contributions would not be excluded from employee gross taxable income. Contribution limits for several tax-advantaged accounts for the following year are usually announced in October, except for HSAs, which come out in late April or May, explained Harry Sit, CEBS, who writes the blog The Finance Buff.
For more information on backdoor Roth, see Congress Blesses Roth IRAs for All, Even the Well-Paid. Major changes in the design of 401 (k) and similar defined-contribution retirement plans are moving forward again in Congress. Plus, you don't need to earn income to contribute to an HSA, unlike most retirement accounts. Under current IRS rules, contributions can be made pre-tax or Roth (if allowed by plan sponsor).
The House version of the SECURE Act 2.0 would require employers to automatically enroll eligible newly hired employees in new defined contribution plans at a pre-tax contribution rate of 3% of the employee's salary with an annual increase of 1% to at least 10% (but no more of 15%). If a participant has not made an investment choice, contributions become a qualified default investment alternative (QDIA), usually a target date or a balanced fund or a managed account. HSA and HDHP limit increases are released much earlier than other employee benefit limits, so insurance companies that offer high-deductible health plans in which participants must be enrolled to make contributions to the HSA can obtain approval for their insurance products by state insurance regulators Sweetnam, legislative and technical director of the Flexible Compensation Employers Council (ECFC), which represents account-based benefit plan sponsors. The original SECURE Act expanded the eligibility of part-time and long-term workers to contribute to their employers' 401 (k) plan.
And the income limits for applying for the saver's credit, an additional incentive to start saving and keep saving, have increased.