Hello! In this educational topic, we are focusing on two law changes that could put more money in your pocket during retirement.

Social Security Fairness Act
Shortly after the new year, President Biden signed the Social Security Fairness Act into law. This eliminates both the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). This will be important for many retirees, particularly those who worked in both the government and private sectors during their careers, or who worked in the public sector and had a spouse that worked in the private sector. More than three million retirees are expected to see increased benefit payments. A short background on the WEP and GPO:
Windfall Elimination Provision (WEP):
The Windfall Elimination Provision (WEP), enacted in 1983, ensures fair adjustment of benefits for individuals who worked in jobs without paying Social Security tax but still qualified for Social Security. The Social Security Administration's benefit formula aims to provide a portion of pre-retirement earnings. It uses a "replacement rate" that is higher for lower-income earners and lower for higher-income earners. This led to a 'windfall' effect for those with non-covered earnings because their income from non-covered employment was treated as if there were no earnings gaps. As a result, individuals with non-covered earnings appeared as low-income workers, receiving a higher replacement rate and a larger percentage of pre-retirement earnings than others with the same total lifetime earnings. To address this issue, the WEP reduces the high replacement rate factor for workers with non-covered earnings, lowering their total Social Security benefit in retirement.
Government Pension Offset (GPO):
In 1977, the Social Security Administration introduced the Government Pension Offset (GPO) to address concerns about workers receiving both a government pension and Social Security spousal or survivor benefits. The GPO ensures individuals cannot receive benefits exceeding the highest single benefit they are entitled to.
The GPO applies to those who:
Worked in government jobs not covered by Social Security.
Qualified for a pension from such jobs.
Are eligible for spousal or survivor benefits from a spouse who paid into Social Security.
If these criteria are met, the GPO reduces the spousal or survivor benefits based on the spouse’s work record. Unlike the WEP, which affects pensions from any non-covered job, the GPO only triggers for government pensions.
The Social Security Administration is currently evaluating new laws and planning their implementation, which we'll monitor closely for our clients.
Super Catch-Up Contributions for Workplace Retirement Plans
Under SECURE 2.0, starting in 2025, individuals aged 60 to 63 by Dec. 31 will be eligible for increased catch-up contributions in their retirement plans. A few notes on this:
These higher catch-up limits apply to 401(k), 403(b), and governmental 457(b) plans that currently offer Age 50+ catch-up contributions. It should be noted that this change is optional for employers, meaning each plan sponsor will decide whether to implement this feature in their retirement plans.
The higher age 50+ catch-up contribution limit for ages 60-63 is $10,000 or 150% of the standard age 50+ catch-up contribution limit, whichever is greater. The IRS has announced that for 2025, the catch-up limit for those age 50+ is $7,500 and the higher catch-up contribution limit for those age 60-63 is $11,250.
To qualify for the higher catch-up contributions, participants must meet specific criteria:
Be 60, 61, 62, or 63 on Dec. 31 of the calendar year
Generally, have already contributed the maximum deferral amount
Once participants turn 64, they revert to the standard age 50+ catch-up contribution limit.
For more information and to stay updated on implementation of the new rules, be sure to keep an eye on this link from the Social Security Administration.
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