The 401(k) and IRA Changes to Consider After Congress Revised Many Retirement Laws

New policies for retirement saving would go into effect immediately or in the New Year

Americans will need to rethink how they save after Congress passed a series of laws that stand to overhaul parts of the country’s retirement saving system.

The retirement overhaul is part of a larger bill passed by Congress just before the holidays. It includes dozens of retirement policy changes that go into effect over the next decade. Many of these provisions kick in immediately after the bill passes, however, creating the need for Americans to examine their own financial planning now, financial advisers say.

The main changes that go into effect right away include incentives for more employers to offer retirement plans and to encourage workers to contribute, and new rules on taking money out and getting lifetime payouts.

Here’s a rundown of the key changes and what you might need to do:

New Rules for Taking Money Out

Required Minimum Distributions. The new legislation raises the age taxpayers generally have to start taking required minimum distributions, known as RMDs, from their retirement accounts to 73 from 72, starting in 2023. That means if you turned 72 in 2022, you have until April 1, 2023, to take your first RMD, the one for 2022, and you’ll have to take another for 2023 by Dec. 31, 2023. If you turn 72 in 2023, your first RMD will be for 2024, the year you turn 73, due on April 1, 2025.

The legislation doesn’t do anything to address the confusion surrounding the new 10-year payout rule for IRAs inherited after 2019.

Missed RMD penalty relief. Congress is reducing the 50% penalty for missed RMDs to 25% of the amount that should have been withdrawn. The penalty drops to 10% if it is corrected in a timely manner.

New exceptions to the 10% early withdrawal penalty. Typically, there’s a 10% penalty if you withdraw money from 401(k)s or other pretax retirement accounts before age 59 ½. The new legislation enhances several existing exceptions, including covering certain private-sector firefighters and public safety officers. It also adds new categories, allowing individuals who are terminally ill to make limited penalty-free withdrawals.

A catchall exception allowing anyone with a personal or family emergency to withdraw up to $1,000 a year penalty-free kicks in for 2024. A penalty exception for those affected by federally declared disasters is retroactive to Jan. 26, 2021. There are also exceptions for victims of domestic abuse and payment of long-term-care premiums.

New Rules to Encourage Savings

Small-employer retirement plan startup tax credit. If you work for a small employer with up to 50 employees that doesn’t offer a retirement plan, your company is eligible for an enhanced tax credit to start up a plan as of Jan. 1. The new credit covers 100% of initial costs up to $5,000 for three years, depending on the number of eligible employees. Employers with 51 to 100 employees get a lesser credit. There’s an additional credit if an employer also matches employee contributions, available for five years.

Solo 401(k)s. Under current law, self-employed individuals who want to establish an individual or solo 401(k) retirement plan have to set it up by Dec. 31 to make contributions for that year. Under the new provision, they have until they file their tax return the next year to open and fund the account, starting with the 2023 tax year.

$2,500 rainy day emergency savings accounts. The legislation allows employers to automatically enroll non-highly compensated employees, those who make up to $150,000 for 2023, in emergency savings accounts linked to a 401(k) plan. Employees could save up to $2,500, and withdrawals would be tax and penalty-free.

Gift cards. The legislation authorizes employers to hand out a small cash payment or gift card to encourage workers to sign up for and contribute to a 401(k)-type retirement plan. The idea is that some employees might respond to even a couple hundred dollars as a sign-up bonus, says Mark Iwry, a former Treasury Department official.

Roth employer matching. The new legislation permits employers to offer Roth matching contributions into an employee’s 401(k) account. Currently, employer match money goes into employee accounts on a pretax basis. Under the new rules, employees can now choose to take the Roth match, which means they are able to pay taxes up front and then later take out the contributions, and potentially the earnings, tax-free.

Lifetime Income Provisions

IRA Charitable Rollover. The legislation includes a provision that lets IRA owners who are 70 ½ or older take a one-time withdrawal of up to $50,000 to fund a charitable gift annuity or charitable remainder trust. That’s a tax win for IRA owners because the withdrawal doesn’t count as income, and it can count toward any required minimum distribution amount for the year.

They generally work like this: The IRA owner gets a minimum payout of 5% annually, taxed as ordinary income, and the charity gets what’s left when the donor dies. The only beneficiaries can be the owner alone or the owner and his or her spouse.

“Charities are going to be telling all their donors about this,” says Conrad Teitell, a tax lawyer in Stamford, Conn., who publishes Taxwise Giving. Effective date: Jan. 1, 2023.

Deferred annuities. For retirees looking for guaranteed income in their old age, the retirement legislation enables more people to take advantage of qualified longevity annuity contracts, known as QLACs, says Mr. Iwry, who spearheaded Treasury’s development of QLACs in 2014.

A QLAC is a deferred annuity that you can buy, say in your 60s, with guaranteed payouts for life starting at age 80 or 85, for example. Under the new rules, 401(k) participants or IRA owners could use up to $200,000 from their account to buy the annuity that would make guaranteed payments for life. Current rules limit the QLAC amount to $145,000 or 25% of the retirement account balance, if less.

“QLACs cover the tail risk of outliving your retirement savings,” Mr. Iwry says. Effective date: when the act is signed into law.

Write to Ashlea Ebeling at ashlea.ebeling@wsj.com

The 5 Best Places to See an Untouched Winter Wonderland

There’s something undeniably magical about a pristine, snowy winter landscape. Smoke rising from chimneys, the Northern Lights dancing above you, hot cocoa warming your hands while snowflakes fall outside your window. From soaking in hot springs to ice skating under mesmerizing mountain peaks, we’ve gathered up the best places to see an untouched winter wonderland around the world. Bundle up, grab a warm beverage and come with us to these snowy destinations.

Lapland, Finland

The far northern reaches of Finland, known collectively as Lapland, are a remote winter landscape utterly untouched. The scattered residents who call this region home carve out snowmobile trails as the polar night engulfs them for two solid months of darkness.

This might be one of the best places in the world to cross the northern lights off your bucket list. Polar nights allow a longer window of time to witness them while crisp winter air makes for perfect viewing conditions. As an added bonus, you can pay Santa Claus himself a visit in the village of Rovaniemi, and pet some of his reindeers.

When the cold starts to seep into your bones, hole up in a traditional Finnish sauna. The tradition of hitting fellow sauna goers with Birch branches is said to increase circulation, helping you thaw from the extreme cold that can reach -40 degrees.

Yellowstone National Park, Wyoming, USA

Winter is an ideal time for visiting Yellowstone National Park as crowds thin, geysers soar, and wildlife spotting becomes more likely. The contrast of bubbling hot springs and volcanic activity juxtaposed with the icy landscape creates an otherworldly effect that has to be seen to be believed.

There is no shortage of winter activities in America’s first national park including snowmobiling, snowshoeing, and cross-country skiing. If you’re feeling up for a splurge, organize a snowcoach for a frozen safari through the desolate landscape. These methods of transportation are some of your only options after the first week of November. Roads don’t open again until the end of April so be sure to plan around travel restrictions. At the end of your trip, head to Mammoth Hot Springs at the northern edge of Yellowstone to thaw out from your icy adventures.

Banff, Canada

Maybe one of the most picturesque places on our list, Banff is a stunning winter destination located in the heart of the Canadian Rockies. Visitors can enjoy ice skating with beautiful views of Lake Louise or a ride in the Banff gondola for sweeping panoramas of the wintery scenes below. If you’re lucky, Banff is another destination on this list where it’s possible to see the northern lights dance across the mountains. When conditions are right the best place to view them is at Lake Minnewanka, located about 10 minutes outside the city, with open sky views.

Chamonix, France

In the shadow of Mont Blanc, Chamonix is one of the premier destinations in Europe for winter sports. From extreme alpine skiing to dog sledding, there’s something for everyone in this frozen mecca.

If you’re feeling adventurous, take the Aiguille du Midi, to see the top of Mont Blanc. Here you can “Step Into the Void” by literally stepping out over a 1,000 foot drop covered by a glass atrium. Chamonix is also home to the largest glacier in France, Mer de Glace. The most scenic way to get there is aboard the Train du Montenvers with sweeping views of the Alps. After you’ve arrived, step inside the glacier itself in the Ice Cave or learn about global warming’s effect on the ice at the Glacorium. Afterwards Indulge in the local alpine cuisine raclette, melted cheese traditionally scraped over vegetables and meat, after a long day on the slopes.

Shirakawago, Japan

Japan is home to several cities with the highest snowfall records in the world. The island country’s unique geography causes ocean air to become trapped against the Japanese Alps resulting in huge snowfalls. Shirakawago sees 33 feet of snowfall on average in the winter months from December to March, making it one of Japan’s must-see winter wonderlands.

Shirakawago’s combination of extreme snowfall and unique cultural attributes caught the attention of UNESCO who designated it a World Heritage site. The idyllic Gassho-style houses that are nestled in the village of Ogimachi are built to withstand the extreme snowfall, giving them their unique look and architecture that allows snow to slide off the roof. Every year for six consecutive Sundays in January and February the village does an illumination ceremony, lighting up the iconic homes.