The new year brought a lot of changes to retirement plans thanks to the Secure 2.0 laws, but the implementation of emergency-savings provisions is moving at a glacial pace. “There’s still a lot of uncertainty,” says David Amendola, senior director of retirement at WTW, a workplace-benefits consultant. “My gut feeling is that we will not see appreciable adoption for some time.”
The IRS cleared up a little of the uncertainty at the beginning of the year by releasing guidance on how it expects the plans to work and how companies can keep employees from abusing the provisions for employer matches of contributions. The way the government envisions this working is through a pension-linked emergency savings account, also known as a Plesa — something that could become as much of a household name as an HSA, or health savings account. If an employer offers a Plesa, workers who make less than $155,000 will be able to contribute after-tax dollars into an emergency fund, which could be invested and grow tax-free in a separate Roth-like account. Employers will be able to match those contributions at the same rate they match retirement contributions. If a worker needs to withdraw Plesa funds, they can do so once a month. The withdrawn funds are not taxed, since the money was taxed going in. Then the employee can replenish the funds up to the contribution cap of $2,500. So if a person puts in $2,500 and then takes out $500, they can put in another $500 at some point in the future. The recent IRS clarification mostly related to how a plan is allowed to establish rules about the matching portion in order to prevent w …
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The IRS cleared up a little of the uncertainty at the beginning of the year by releasing guidance on how it expects the plans to work and how companies can keep employees from abusing the provisions for employer matches of contributions. The way the government envisions this working is through a pension-linked emergency savings account, also known as a Plesa — something that could become as much of a household name as an HSA, or health savings account. If an employer offers a Plesa, workers who make less than $155,000 will be able to contribute after-tax dollars into an emergency fund, which could be invested and grow tax-free in a separate Roth-like account. Employers will be able to match those contributions at the same rate they match retirement contributions. If a worker needs to withdraw Plesa funds, they can do so once a month. The withdrawn funds are not taxed, since the money was taxed going in. Then the employee can replenish the funds up to the contribution cap of $2,500. So if a person puts in $2,500 and then takes out $500, they can put in another $500 at some point in the future. The recent IRS clarification mostly related to how a plan is allowed to establish rules about the matching portion in order to prevent w …nnDiscussion:nn” ai_name=”RocketNews AI: ” start_sentence=”Can I tell you more about this article?” text_input_placeholder=”Type ‘Yes'”]