Plan Sponsor News

Today’s workforce is going through a historic shift as more than 11,000 individuals a day are turning 65.¹ While this is the traditional retirement age for many, approximately one in five Americans age 65 and older were employed in 2023—nearly double from 35 years ago.² Additionally, the percentage of older workers is projected to continue to increase over the next decade.³

This may not be surprising given the EBRI/Greenwald Research Retirement Confidence Survey showing that 53% of workers with a retirement plan are only somewhat confident that they’ll have enough money to live comfortably throughout retirement, while 26%
aren’t confident.⁴

Percentage of individuals 55+ participating in the workforce

Source: U.S. Bureau of Labor Statistics, Employment Projections: Civilian labor force participation rate by age, sex, race, and ethnicity, Table 3.3. https://www.bls.gov/emp/tables/civilian-labor-force-participation-rate.htm (last modified September 6, 2023)

Extending benefits to older workers

As workers 65+ are staying around longer in the workforce, they’re more likely than in previous decades to receive employer-provided benefits.² However, they’re not necessarily working in traditional 40-hour-a-week roles. Nearly half consider themselves to be retired but are working in a part-time capacity.⁵ Based on provisions in the SECURE Act and SECURE 2.0 Act, these part-time workers may be able to continue making salary deferrals to workplace retirement plans.⁶

Long-term part-time workers

Starting this year, long-term part-time employees must be enrolled in their employer’s 401(k) after working at least 500 hours over three consecutive years, beginning with the 2021 plan year. Beginning with the 2025 plan year, however, part-time workers are eligible for enrollment after working at least 500 hours over two consecutive years.

The rule will also be applicable to 403(b) plans. Read more about the latest on the long-term part-time provisions here, including details on employer contributions to workplace plans, vesting and ensuring operational compliance.

If you have questions about how to help your employees secure a financially healthy future, contact your local Mutual of America representative.

¹Alliance for Lifetime Income, Welcome to The Peak 65^® Zone – A New Chapter in America’s Retirement Landscape. https://www.protectedincome.org/peak65/

²Pew Research Center, “Older Workers Are Growing in Number and Earning Higher Wages,” Dec. 14, 2023. https://www.pewresearch.org/social-trends/2023/12/14/older-workers-are-growing-in-number-and-earning-higher-wages/

³U.S. Bureau of Labor Statistics, Employment Projections 2022–2032., Sept. 6, 2023. https://www.bls.gov/news.release/ecopro.nr0.htm

⁴EBRI/Greenwald Research, 2023 RCS Fact Sheet #1, Retirement Confidence, Figure 3. https://www.ebri.org/docs/default-source/rcs/2023-rcs/rcs_23-fs-1_confid.pdf?sfvrsn=738d392f_4

⁵Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2022, page 65, May 2023. https://www.federalreserve.gov/publications/files/2022-report-economic-well-being-us-households-202305.pdf

⁶SECURE 2.0 Act, Section 125. https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

If your organization has 50 or fewer employees and recently implemented a retirement plan, you may be eligible for a tax credit equal to 100% of plan startup costs, as of tax year 2023.

The increased credit, a result of the SECURE 2.0 Act (Section 102), is available for the first three years of a plan, up to $5,000 per year. For employers with 51–100 employees, the tax credit remains equal to 50% of startup costs, up to $5,000 per year.¹

You may be eligible for an additional tax credit—up to $1,000 per participant—if your organization makes employer contributions to the plan on employees’ behalf. The credit is phased out over five years: 100% in the first and second years, 75% in the third year, 50% in the fourth year and 25% in the fifth year.¹ For employers with 51–100 employees, the percentage of the credit is reduced by 2% for each employee in excess of 50 employees.²

Qualifying small businesses may claim the credits using Form 8881, Credit for Small Employer Pension Plan Startup Costs.

¹SECURE 2.0 Act of 2022. United States Senate.
https://www.help.senate.gov/imo/media/doc/secure_20sectionbysection.pdf

²Instructions for Form 8881 (Rev. January 2024), Credit for Small Employer Pension Plan Startup Costs, Auto-Enrollment, and Military Spouse Participation, page 2. https://www.irs.gov/pub/irs-prior/i8881–2024.pdf

Understanding tax implications of your plan is crucial for supporting your employees. To help them, here are a few commonly asked questions related to workplace retirement plans.

Q1: How are contributions taxed?
Employee contributions (also called elective deferrals) are generally made on a pre-tax basis. That means they are removed from an employee’s pay before income tax and FICA/FUTA taxes are withheld. Pre-tax deferrals reduce the amount of gross income on which employees pay federal and state taxes.¹ If your plan allows, your employees may also be able to defer salary on an after-tax basis. This means that income and employment taxes are withheld first, and then contributions are deferred from the employee’s salary. After-tax contributions can be made on a Roth basis or a non-Roth basis, depending on the terms of your plan.

Q2: How much can employees contribute each year?
For 2024, 401(k) and 403(b) plan participants are eligible to put away a combined pre- and after-tax maximum of $23,000, an increase of $500 over 2023. And if an employee is age 50 or above, they can make additional catch-up contributions of $7,500 for a total of $30,500 in 2024.²

Q3: Are plan-to-plan rollovers subject to taxes?
When an employee rolls over retirement account funds into another eligible plan, the rollover is generally not taxed. The exception is if the rollover is a conversion from a pre-tax contribution to a Roth 401(k) or a Roth IRA.³

Q4: How are withdrawals taxed in retirement?
Withdrawals of pre-tax 401(k)s and 403(b) elective deferrals are taxed as regular income when money is distributed from the plan. If distributions are made prior to age 59½, there may also be an additional 10% penalty tax assessed, unless an exception exists.⁴ Distributions of Roth amounts are tax free, provided the account holder is 59½ and the account has been open for at least five years.⁵ And distributions of non-Roth after-tax contributions are taxable only to the extent of investment earnings on the contributions.

Q5: Do employees have to take required minimum distributions while still employed?
Required minimum distributions, or RMDs, are the minimum amounts that retirement plan account owners generally must withdraw annually—starting the year they reach 73.⁶ However, if an individual is still employed at 73, they may delay taking RMDs from their current workplace plan until retirement.⁷

If you have questions about retirement planning for your employees or incorporating financial wellness initiatives into your workplace, talk to your local Mutual of America representative.

The tax information contained herein is for informational purposes only and cannot be relied upon as tax advice. You should consult your financial adviser or attorney regarding your individual circumstances.

¹Mutual of America. https://www.mutualofamerica.com/insights-and-tools/glossary?newLetter=P

²Internal Revenue Service, 401(k) Limit Increases to $23,000 for 2024, IRA Limit Rises to $7,000. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

³Internal Revenue Service, Topic no. 413, Rollovers from retirement plans. https://www.irs.gov/taxtopics/tc413

⁴Internal Revenue Service, Retirement topics: Exceptions to tax on early distributions. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions

⁵Internal Revenue Service, Roth account in your retirement plan, https://www.irs.gov/retirement-plans/roth-acct-in-your-retirement-plan

⁶Internal Revenue Service, IRS reminds those aged 73 and older to make required withdrawals from IRAs and retirement plans by Dec. 31; notes changes in the law for 2023. Dec. 20, 2023. https://www.irs.gov/newsroom/irs-reminds-those-aged-73-and-older-to-make-required-withdrawals-from-iras-and-retirement-plans-by-dec-31-notes-changes-in-the-law-for-2023

⁷Internal Revenue Service, Retirement Plan and IRA Required Minimum Distributions FAQs. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

*Employee Benefit Research Institute and Greenwald Research 2023 Workplace Wellness Survey. Page 30, Figure 19.