In celebration of National 401(k) Day (Sept. 8), I’ll put on my financial literacy hat and offer some advice. Everyone who works for a company offering a 401(k) needs to sign up -- yes, everyone.

Far too many eligible employees are left out. CNBC’s Your Money Survey confirmed that 41% of 2,700 people surveyed in August did not contribute any money to a 401(k) or an employer-sponsored plan. Everyone should contribute. And everyone who does participate needs to learn how to maximize the leverage that 401(k)s offer -- especially if the plan offers an employer match.

I’m giving you only surface-level advice, but I’m happy to do more as a longtime proponent of financial literacy education for individuals of all financial means. Every 401(k) decision comes down to understanding how the plan works, and that calls for education, which calls for taking the time to study the plan -- all extraordinarily important to do now, not later, since you lose if you delay.

I first researched 401(k) education long ago to prepare to write my first book on the subject in the 1990s. “You and Your 401(k)” was published in 1996, followed by “The 401(k) Plan Handbook” in 1997.

Today, my writing is for broader audiences, but my financial literacy mission is still narrowly focused on promoting 401(k) education. There is simply no reason for employees to miss out on the full advantages of 401(k)s -- even if they believe they can’t afford to contribute.

On that note, let me throw a challenge to HR, benefits and tax experts. What advice would you give to those that feel they cannot afford to contribute? How can you make the contribution affordable? This is a subject I’ve written about, and there are answers that can help.

Answers to questions like those and others can help employees take charge of their retirement security, a valuable goal for employers and employees alike.

Teaching people to use the 401(k) to help achieve retirement security led me to do more than just speak and write about the subject. Five years ago, I created and funded the 401(k) Champion® Competition, with the goal of encouraging employees to talk with each other about their 401(k) benefits. The 2023 contest is now live. See 401kchampion.com.

The national competition is centered on 401(k) education on a grassroots level. Participants write an essay about how they would advise co-workers on why they should contribute to and maximize their 401(k)s.

If you’d like to support the educational effort, tell participants about the contest, which I run pro bono. Three winners earn the title of 401(k) Champion® and $1,000 each.

I’ve said before that a peer-to-peer message from one 401(k) participant to another can be more effective than attending an employee enrollment session or reading a brochure.

That is reaffirmed by 2022 401(k) Champion® Kevin Alexander, who said: “I’ve received a lot of advice over the decades. ... The best advice I ever received? Start a 401(k) and do it today.”

If you are a benefits or HR expert who wants to improve employee understanding of the benefits of 401(k)s, I invite you to write to me (readers@juliejason.com). I will make myself available to share what I’ve seen work to start a dialogue among employees about their retirement security and how to maximize the leverage a 401(k) offers over what they can do on their own.

Just consider this: If there is a dollar-for-dollar employer match, what investment can double your money so easily?

This is an exciting time for 401(k) plans for other reasons as well. As Brian Anderson, editor-in-chief of 401(k) Specialist Magazine, points out: “Recognizing its potential, lawmakers crafted many provisions in the SECURE Act of 2019 and SECURE 2.0 in 2022 specifically to make it easier and more affordable for small- and medium-sized businesses to provide 401(k) plans for their workers.”

Finally, for the skeptics: No, I’m not in the 401(k) business.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Are you looking to catch up on saving for retirement?

If you are 50 or older and worried about having enough money saved for retirement, you need to learn about catch-up contributions. First, let's talk about 2023; then, we'll address changes coming in 2024 and 2025.

Catch-up contributions are extra funds you can contribute to your retirement account when you are 50 or older (tinyurl.com/48dhafrf).

For 2023, the catch-up contributions for 401(k)s and 403(b)s (defined contribution plans) can be up to $7,500. If you want to maximize your contribution for the year, adding $7,500 to $22,500 (the maximum contribution for 2023) will bring you up to $30,000 that you can contribute to your 401(k) plan at work in 2023.

The catch-up contribution for an IRA in 2023 is $1,000, although that amount will be indexed to inflation starting in 2024. The maximum you can contribute to an IRA with the catch-up is $7,500 ($6,500 plus the $1,000 catch-up if you are 50 or older).

To stay on top of things going forward, keep in mind that you need to check yearly cost-of-living adjustments for both regular contributions and catch-up contributions. There are also yearly limits for the total amount that is contributed (tinyurl.com/2hvetkev).

Keep in mind that there are also limits to the amount an employer can contribute.

The 401(k) limit for an individual of any age for all contributions (including the employee's and the employer's) is $66,000 in 2023 (or 100% of a participant's compensation, whichever is less).

For an individual age 50 or older, the catch-up contribution increases the $66,000 maximum to $73,500 for 2023.

At the moment, catch-ups can be directed to pre-tax or Roth 401(k)s, if the plan provides for after-tax contributions -- not all do. But, starting in 2024, high earners will be constrained.

Section 603 of SECURE Act 2.0 requires catch-up contributions for high earners (income of more than $145,000 in the previous year) to be designated as post-tax Roth contributions, not as pre-tax contributions.

That means there is less freedom for you, the high-earning participant, to make a choice. Congress has taken that away from you, starting in 2024. If you are a high earner, your catch-up will be after-tax. (A lower earner is still free to choose.)

Pre-tax contributions lower your taxable income by the amount of the contribution. After-tax contributions do not.

However, after-tax contributions will grow tax-free forever (unless Congress has other ideas someday in the future).

An estimated 16% of the eligible participants in Vanguard defined contribution plans made catch-up contributions in 2022, including about half of the participants who had income over $150,000, according to Vanguard's "How America Saves 2023" report (tinyurl.com/342yx7wh).

About 200 organizations signed a letter in July to the leaders of the House Committee on Ways and Means and the Senate Committee on Finance asking that the Roth catch-up requirement in Section 603 involving the $145,000 threshold be delayed for two years so that plan recordkeeping and compliance systems could accommodate the change (tinyurl.com/3a8rx525).

The issue was addressed on Aug. 25, 2023, through Notice 2023-62 (tinyurl.com/39jjufm7). The notice indicated that "the first two taxable years beginning after December 31, 2023, will be regarded as an administrative transition period" related to the Roth catch-up requirement and the $145,000 threshold, adding that during that time, catch-up contributions will be treated as satisfying requirements even if they are not designated as Roth contributions, and a plan that does not provide for designated Roth contributions will still be treated as satisfying requirements.

Further guidance from the IRS is expected. "The Treasury Department and the IRS intend to issue further guidance to assist taxpayers with the implementation of section 603 of the SECURE 2.0 Act," quoting Notice 2023-62.

Now is a good time to talk to your tax adviser to address additional funding for your future retirement.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Last week, we discussed the reduction of the excise tax (penalty) for failure to take a required minimum distribution, or RMD, from 50% of the minimum amount not distributed to 25%. That change came about as a result of the SECURE 2.0 Act, effective beginning this year, 2023.

We left the discussion of the SECURE 2.0 Act's limited-case reduction to 10% for this column.

The statute provides for a 10% penalty, but it is dependent on timing the correction properly. The 25% penalty is reduced to 10% if the RMD is "timely corrected," quoting the IRS website (tinyurl.com/yfwcubn4).

IRS Publication 590-B (tinyurl.com/yc6tx8dh) defines the correction window:

"You may be subject to a reduced excise tax rate of 10% of the amount not distributed, if, during the correction window, you take a distribution of the amount on which the tax is due and submit a tax return reflecting this excise tax. The 'correction window' is the period of time beginning on the date on which the excise tax is imposed on the distribution shortfall and ends on the earliest of the following dates:

-- The date of mailing the deficiency notice with respect to the imposition of this tax; or

-- The date the tax is assessed; or

-- The last day of the second taxable year that begins after the date of the taxable year in which the excise tax is imposed."

While this seems complicated, it isn't.

Let's take an example. Assume you miss your 2023 RMD. The "second taxable year" would be the 2025 tax year. If you don't get a deficiency notice or a tax assessment from the IRS before Dec. 31, 2025, the correction window closes Dec. 31, 2025. The RMD for 2023 would need to be taken before the end of tax year 2025.

As for when the excise tax is "imposed," an IRS spokesperson explained, "The tax is legally imposed in the year there is a shortfall." That is, if the RMD is for 2023, the tax return you file in 2024 for 2023 will deal with the imposition of the penalty.

Further, when there is an RMD shortfall, "[t]he tax is due for the tax year that includes the last day by which the minimum required distribution must be taken," quoting the instructions for IRS Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts" (tinyurl.com/mv72yhhs).

The SECURE 2.0 Act did not address requests for waivers of the penalty for "reasonable cause." With a waiver, the penalty would be zero instead of 25% or 10%.

You would file IRS Form 5329 to request a penalty waiver. Under current procedures, the IRS can waive all or part of the excise tax if "any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall." See the "Waiver of tax for reasonable cause" section in IRS Form 5329, Part IX.

Keep in mind the motivation behind the change in the excise tax for missed RMDs in the SECURE 2.0 Act, as expressed by the House of Representatives' Committee on Ways and Means: "The Committee recognizes that in many cases, failures to take a required minimum distribution are inadvertent. The Committee thus wishes to reduce the overall excise tax that applies to such failures, in particular in the case of an individual who discovers such a failure and takes steps to correct it" (tinyurl.com/9bprn8fn).

Regarding the 10% penalty and its two-year correction window, the IRS spokesperson noted, "In many respects, it is a somewhat unusual statutory provision." He added that the SECURE 2.0 Act is new, and the IRS is "looking at what formal legal guidance may be needed."

For more information on the penalty, read Q8 on the IRS website page "Retirement Plan and IRA Required Minimum Distributions FAQs" (tinyurl.com/yfwcubn4).

Bottom line: Take your RMDs on time. If you miss one or fail to take the full RMD, act as quickly as possible to make up the difference. And be sure to inform your tax adviser.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION