Saving for Retirement Just Got Easier for Part-Time Workers
Working part-time is great for flexibility, but is a major bummer when it comes to benefits. Fortunately, the new rule now opens the door for millions of part-time workers to start building their savings earlier through employer-sponsored retirement plans. The rule —part of the SECURITY Act 2.0, passed in 2022 —shortens the waiting period for part-time employees to join their company’s 401(k) or 403(b) plans. Here’s what you need to know to take advantage of this change and maximize your savings this year.
How part-time workers can save more for retirement
Under the new rules, part-time workers can claim their employer’s pension plan after just two years of service, provided they work at least 500 hours a year. This is less than the previous three-year requirement, making it much easier for part-time employees to start saving for retirement through their workplace plans.
To put that in perspective, 500 hours per year equals about 10 hours per week, meaning that even those who work limited hours can claim these important benefits faster than before. Whatever your idea of part-time work, this rule benefits a wide range of people:
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Newly hired employees who work a stable part-time schedule can start saving money up to a full year earlier than under previous rules.
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Workers holding multiple part-time jobs can now access benefits more quickly from their regular employers.
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Parents or guardians working shorter hours can start saving for retirement sooner.
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Students who work part-time while in school can begin their retirement savings journey earlier in their careers.
Read the fine print
First, a quick clarification: While freelancers are self-employed (and are eligible for their own types of plans ), this rule applies to part-time, long-term workers who are still considered part of the company and eligible to participate in the program. corporate benefits.
In addition, the new regulation contains several key provisions:
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This rule applies to most 401(k) plans and some 403(b) plans.
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Group plans are exempt from these requirements.
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Hours accrued prior to 2021 do not count toward eligibility requirements.
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Employers must still offer plan participation to those who work 1,000 hours in one year.
Maximizing your retirement savings
For part-time workers who are now eligible for retirement plans, consider taking the following steps.
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Review your employer’s matching program, if available, and try to contribute enough funds to cover the entire match.
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Calculate how much you can consistently contribute from each salary.
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Consider automatically increasing your contributions to gradually increase your savings rate.
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Explore your plan’s investment options and choose a diversified portfolio that fits your retirement schedule.
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Review all employer contribution distribution schedules.
Bottom line: Part-time employees should check with their human resources departments about eligibility and plan details, as employers will need to implement these changes to the administration of their retirement plan as soon as possible. Starting to save early, even in small amounts, can have a significant impact on your long-term retirement.