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    Cryptocurrency options in 401(k) plans: Here’s what to know to make the most of your workplace retirement plan

    Cryptocurrency was one of the fastest-growing categories of exchange-traded funds in 2024. 
    Although crypto is a small part of the 401(k) plan market, it could grow substantially in 2025. 
    However, advisors point to volatility and risk as reasons to be conservative with cryptocurrency investments.

    The rally in bitcoin and other cryptocurrency prices has generated excitement among some investors, but investment advisors are largely still skeptical that those volatile assets belong in a 401(k) plan or other qualified retirement savings plans.  
    Crypto was one of the fastest-growing categories of exchange-traded funds in 2024. The most popular of these funds, the iShares Bitcoin Trust ETF (IBIT), has ballooned to over $50 billion in total assets.

    Although crypto is a small part of the 401(k) plan market, it could grow substantially in 2025.
    President-elect Donald Trump has suggested he will create a strategic reserve of bitcoin for the U.S. and has nominated Paul Atkins, a cryptocurrency advocate, to chair the Securities and Exchange Commission. The SEC’s approval of spot bitcoin and ethereum exchange-traded funds in 2024 was a key change for the industry. 

    More from Your Money:

    Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

    The law covering 401(k) plans requires plan sponsors to act as fiduciaries, or in investors’ best interest, by considering the risk of loss and potential gains of investments. The Labor Department has cautioned fiduciaries to exercise “extreme care” before adding crypto options to a 401(k) plan’s core investments. 
    Labor Department officials, however, haven’t required fiduciaries to select and monitor all investment options, like those offered through self-directed brokerage windows, according to the Government Accountability Office. Nearly 40% of plans now offer brokerage windows in their 401(k) accounts, according to a 2023 survey by the Plan Sponsor Council of America. 

    Pros and cons of crypto in a 401(k) plan

    Fernando Gutierrez-Juarez | Picture Alliance | Getty Images

    Views are mixed about how much crypto to add to retirement savings or if it’s wise to allocate any at all. 

    Some financial advisors say crypto can work for a 401(k) plan because its movements are unconnected to the stock market and it functions even if a fiat currency is devalued.
    “Crypto should be a part of a 401(k) plan because it’s a non-correlated alternative asset class,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.
    “With that said, investors need to ensure that they take their risk tolerance and time horizon into account which will define the target allocation,” said Johnson, who is also a member of the CNBC Financial Advisor Council. “The more volatile an asset class is, the less you need of it in the portfolio because you presumably get more bang for your buck.”
    Johnson recommends cryptocurrencies range from 2% to 8% of an investor’s portfolio.  

    Other experts point to volatility and risk as reasons to be conservative.
    “People saving for retirement should probably be even more conservative, because adding crypto to a 401(k) plan would significantly increase the risk that your retirement nest egg could suffer a large loss at the wrong time,” said Amy Arnott, a chartered financial analyst and portfolio strategist with Morningstar Research Services.
    Morningstar found that since September 2015, bitcoin has been nearly five times as volatile as U.S. stocks, and ether nearly 10 times as volatile. That type of volatility adds a large risk to a portfolio even with a small amount invested.

    401(k) contribution limits for 2025 

    Regardless of what assets are in a 401(k) plan, there are limits to how much you can contribute. For 2025, an employee can contribute up to $23,500 in a 401(k) and other employer-sponsored plans — that’s $500 more than in 2024.
    People age 50 or older can make a “catch-up contribution” of up to $7,500. And those age 60 to 63 years old can supersize that, with a catch-up contribution of up to $11,250 for 2025.
    SIGN UP: Money 101 is an eight-week newsletter series to improve your financial wellness. For the Spanish version, Dinero 101, click here. More

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    Quantum stocks like Rigetti plunge after Nvidia’s Huang says the computers are 15-to-30 years away

    Nvidia CEO Jensen Huang speaks with the press during the launch of the supercomputer Gefion at Vilhelm Lauritzen Terminal in Kastrup, Denmark, on Oct. 23, 2024.
    Ritzau Scanpix | Mads Claus Rasmussen | Via Reuters

    Quantum computing stocks dropped Wednesday after Nvidia CEO Jensen Huang declared that useful quantum computers are many years away.
    “If you said 15 years for very useful quantum computers, that would probably be on the early side,” he said during Nvidia’s analyst day. “If you said 30, it’s probably on the late side. But if you picked 20, I think a whole bunch of us would believe it.”

    Huang said that he believes Nvidia will play a “very significant part” in creating the computers and helping the industry “get there as fast as possible.”

    Stock chart icon

    Rigetti falls on comments for Nvidia CEO Jensen Huang

    Stocks tied to quantum computing tumbled in premarket trading on the heels of the comments, with Rigetti Computing plunging 25%, while IonQ shed more than 13%. D-Wave Quantum dropped more than 19%, while the Defiance Quantum & AI ETF fell 3%. Quantum Computing, which announced a stock offering to raise $100 million, sank 21%.
    The sector had gotten a lift into the end of 2024 as excitement around quantum computing exploded after Google revealed its latest Willow chip, which it said performed better than its 2019 predecessor at reducing errors.
    The excitement boosted shares into year end, with Rigetti and D-Wave rallying 1,449% and 854%, respectively
    Many investors, however, have warned that it may be too early to rule out proper winners in the sector and real-world use cases for the technology. More

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    Tax bracket changes could mean your paycheck is slightly bigger in 2025 — here’s what to know

    Your paycheck could be slightly bigger in 2025 due to inflation adjustments to federal income tax brackets.
    The change may be smaller than in previous years amid cooling inflation.
    Regardless, you should monitor federal and state tax withholdings throughout the year to avoid a surprise tax bill.

    Simpleimages | Moment | Getty Images

    Why your take-home pay could be higher

    If you’re starting 2025 with wages similar to your 2024 wages, your take-home pay — or compensation after taxes and benefit deductions — could be a little higher, depending on your withholdings, according to Long.
    “When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder,” he said.

    The federal income tax brackets show how much you owe on each part of your “taxable income,” which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

    “Even if you make a little more than last year, you could actually pay less in tax in 2025 compared to 2024,” because the standard deduction also increased, Long said. 
    For 2025, the standard deduction increases to $30,000 for married couples filing jointly, up from $29,200 in 2024. The tax break is also larger for single filers, who can claim $15,000 in 2025, a bump from $14,600.  

    ‘It ends up nearly balancing out’

    Despite tax bracket changes, many Americans won’t feel the pay increase amid elevated prices for certain expenses, said Sheneya Wilson, a CPA and founder of Fola Financial in New York.
    “It ends up nearly balancing out,” she said.
    While inflation is no longer accelerating, there was an uptick in the cost of groceries, gasoline and new cars in November, according to the Bureau of Labor Statistics.
    Whether take-home pay is higher or lower than expected, it’s important to monitor your state and federal income tax withholdings throughout the year, especially during major income or life changes, Wilson said.
    Typically, if you withhold too much from your paycheck, you can expect a refund, whereas not withholding enough often results in taxes owed.     More

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    As student loan bills become a normal part of life again, tax break will be available to many

    There’s one upside to your student loan payments: they might qualify you for a tax break.
    The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt.

    Damircudic | E+ | Getty Images

    There’s one upside to your student loan payments: they might reduce your 2024 tax bill.
    The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the deduction, according to higher education expert Mark Kantrowitz.

    Most borrowers couldn’t claim the deduction on federal student loans during the pandemic-era pause on student loan bills, which spanned from March 2020 to October 2023. With interest rates on those debts temporarily set to zero, there was no interest accruing for borrowers to claim.
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    But interest on federal student loans began accruing again in September of 2023, and the first post-pause payments were due in October of that year.
    By now, borrowers could again have interest to claim for the full tax year’s worth of payments, experts said.
    “All borrowers should explore whether they qualify for the deduction as it can reduce their tax liability,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.

    Student loan interest deduction worth up to $550

    The student loan interest deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.
    Your lender or student loan servicer reports your interest payments for the tax year to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.
    If you don’t receive the form, you should be able to get it from your servicer.

    Depending on your tax bracket and how much interest you paid, the student loan interest deduction could be worth up to $550 a year, Kantrowitz said.
    There are income limits, however. For 2024, the deduction starts to phase out for individuals with a modified adjusted gross income of $80,000, and those with a MAGI of $95,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $165,000, and those with a MAGI of $195,000 or more are ineligible.

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    Op-ed: Here’s why estate planning is a gift for your family

    FA Playbook

    Estate planning isn’t about focusing on your demise; it’s about taking control and making decisions that ensure your loved ones are cared for.
    It’s a way to share your wishes and protect the people you care about most, leaving them a roadmap instead of unanswered questions. 
    Without a will and a plan, state intestacy laws determine what happens to your hard-earned assets.

    Just hearing those words ” estate planning ” makes most people zone out, as it’s tied to the end of their mortality, a topic they’d rather avoid. However, it’s important to consider what will happen to your personal belongings, finances and both tangible and digital assets as part of your estate plan. I would be remiss if I didn’t address a common myth: there’s no correlation between signing your estate planning documents and something happening to you immediately following. This is an objection to estate planning I have heard countless times from clients over the years. Estate planning attorneys have shared stories with me on many occasions where people come for a consultation, have the documents drafted, pay for them and fail to sign them for this reason as well. Let’s work to reframe how you think about this type of planning. Visualize the benefits of sharing your wishes with those you love. Estate planning isn’t about focusing on your demise; it’s about taking control and making decisions that ensure your loved ones are cared for. It’s a way to share your wishes and protect the people you care about most, leaving them a roadmap instead of unanswered questions. Money often causes disagreements , even among the closest families. Without clear instructions, disputes can arise, which could be disastrous to a family at a time when they should be leaning on each other. Having the proper documents in place does not guarantee there won’t be a family feud, as fighting is something that may take place with even the best plans. But you can provide the guidance your loved ones need to respect your wishes. Key documents: Will and/or trust to outline your wishes for your assets and family. Power of attorney to appoint someone who can step into your shoes and make financial decisions on your behalf. Health care proxy to appoint someone who can make health decisions on your behalf. The risks of dying without an estate plan Consider this: Without a will and a plan, state intestacy laws determine what happens to your hard-earned assets. This process, known as probate, is a legal procedure through which a court oversees the distribution of your estate. During probate, your assets are inventoried, debts are paid and the remaining property is distributed according to state law — often without regard to your wishes. Your will can help your family avoid this and have your assets distributed according to your wishes. Probate can be a lengthy, expensive, and public process. The public nature means that details of your estate, including its value and who inherits it, become a matter of public record. This lack of privacy can lead to unwanted scrutiny, potential disputes, or even predatory actions against your family. Probate can cause unnecessary stress and delays for your loved ones. There are actions you can take to further minimize the complexity of the probate process. Assets that are titled properly (such as joint with rights of survivorship) or that have a beneficiary named, will not be subject to your will or probate as a result. Naming a trust that will own your assets is also a way to avoid the complex and often lengthy probate process. These extra steps will help limit the say the state law or courts have over your assets and the public nature of the assets owned by the trust. You probably will not be able to avoid probate altogether, but this will help you make your wishes known and limit the involvement of the state. If you don’t take action, deeply personal decisions about your finances, assets, and even your loved ones will be made by the courts — not by you. Allowing the courts to make these decisions can lead to outcomes that may not reflect your wishes or the needs of your family. A solid estate plan ensures your assets go where you want, protecting your family from added stress during an emotional and already stressful time. Without these documents, your hard work and your legacy may go to those you would not want to benefit. A will and/or trust allows you to outline your wishes and direct what will happen after you are gone. These documents provide a way to share your expectations and provide direction on how you want your assets handled when you are gone. Absent these documents the state you reside in will decide how your assets are distributed. If you have children, the state will decide who cares for them. Think about that: if you die without a will, the state will decide the fate of your children. Estate planning to ’empower the present’ Estate planning isn’t just about the future — it’s about empowering the present. Estate planning includes appointing trusted individuals to handle your finances and health care decisions if you’re ever unable to. In general, people are living longer — life expectancy in the U.S. has risen from approximately 61 years in 1940 to over 79 years today. As individuals age , many may find themselves unable to manage day-to-day finances or make critical health decisions. With tools like a power of attorney and health care proxy, you can empower the people you trust most to step in when needed and ensure your wishes are honored keeping these deeply personal decisions out of the hands of the state. A power of attorney allows you to select someone to make financial decisions on your behalf, while a health care proxy ensures your trusted advocate can make critical health-related choices when you cannot. What to learn from high-profile estate mistakes High-profile disputes serve as powerful cautionary tales, even for those of us outside the spotlight. For example, Aretha Franklin’s music will live on as her legacy, but her estate planning mistakes have kept her family in court for years. Thirty years after Bob Marley’s death, his heirs were still battling over the singer’s estate in court, and when Kurt Cobain died by suicide in 1994, he did so without a will, so the State decided the fate of his estate, now valued at more than $400 million. These families endured costly legal battles and are extreme examples, but they highlight an important lesson: no matter the size of your estate, planning is essential. Having a plan allows your family to know what you want and gives them a roadmap to carry it out. Therefore, having that will and an estate plan in place will give your family the ultimate gift: a plan that leaves no question unanswered. Creating a plan is not just about dividing assets; it’s about showing love and responsibility for the people who mean the most to you. While no plan can promise to prevent all family conflicts, it will undoubtedly place your loved ones in a far better position than leaving things to chance — or the courts. By putting these essential documents in place, you can experience the joy of knowing you’ve taken control of your legacy in both life and death. — By Lawrence D. Sprung, a certified financial planner and founder/wealth advisor at Mitlin Financial Inc.

    Svetikd | E+ | Getty Images

    Just hearing those words “estate planning” makes most people zone out, as it’s tied to the end of their mortality, a topic they’d rather avoid.
    However, it’s important to consider what will happen to your personal belongings, finances and both tangible and digital assets as part of your estate plan.

    I would be remiss if I didn’t address a common myth: there’s no correlation between signing your estate planning documents and something happening to you immediately following.
    This is an objection to estate planning I have heard countless times from clients over the years. Estate planning attorneys have shared stories with me on many occasions where people come for a consultation, have the documents drafted, pay for them and fail to sign them for this reason as well.

    More from FA Playbook:

    Here’s a look at other stories impacting the financial advisor business.

    Let’s work to reframe how you think about this type of planning. Visualize the benefits of sharing your wishes with those you love.
    Estate planning isn’t about focusing on your demise; it’s about taking control and making decisions that ensure your loved ones are cared for. It’s a way to share your wishes and protect the people you care about most, leaving them a roadmap instead of unanswered questions. 
    Money often causes disagreements, even among the closest families. Without clear instructions, disputes can arise, which could be disastrous to a family at a time when they should be leaning on each other.

    Having the proper documents in place does not guarantee there won’t be a family feud, as fighting is something that may take place with even the best plans. But you can provide the guidance your loved ones need to respect your wishes.
    Key documents:

    Will and/or trust to outline your wishes for your assets and family.
    Power of attorney to appoint someone who can step into your shoes and make financial decisions on your behalf.
    Health care proxy to appoint someone who can make health decisions on your behalf.

    The risks of dying without an estate plan

    Consider this: Without a will and a plan, state intestacy laws determine what happens to your hard-earned assets.
    This process, known as probate, is a legal procedure through which a court oversees the distribution of your estate. During probate, your assets are inventoried, debts are paid and the remaining property is distributed according to state law — often without regard to your wishes.
    Your will can help your family avoid this and have your assets distributed according to your wishes.
    Probate can be a lengthy, expensive, and public process. The public nature means that details of your estate, including its value and who inherits it, become a matter of public record. This lack of privacy can lead to unwanted scrutiny, potential disputes, or even predatory actions against your family. Probate can cause unnecessary stress and delays for your loved ones.
    There are actions you can take to further minimize the complexity of the probate process.
    Assets that are titled properly (such as joint with rights of survivorship) or that have a beneficiary named, will not be subject to your will or probate as a result. Naming a trust that will own your assets is also a way to avoid the complex and often lengthy probate process.
    These extra steps will help limit the say the state law or courts have over your assets and the public nature of the assets owned by the trust. You probably will not be able to avoid probate altogether, but this will help you make your wishes known and limit the involvement of the state.

    If you don’t take action, deeply personal decisions about your finances, assets, and even your loved ones will be made by the courts — not by you.
    Allowing the courts to make these decisions can lead to outcomes that may not reflect your wishes or the needs of your family.
    A solid estate plan ensures your assets go where you want, protecting your family from added stress during an emotional and already stressful time. Without these documents, your hard work and your legacy may go to those you would not want to benefit.
    A will and/or trust allows you to outline your wishes and direct what will happen after you are gone. These documents provide a way to share your expectations and provide direction on how you want your assets handled when you are gone. Absent these documents the state you reside in will decide how your assets are distributed.
    If you have children, the state will decide who cares for them. Think about that: if you die without a will, the state will decide the fate of your children.

    Estate planning to ’empower the present’

    Fg Trade Latin | E+ | Getty Images

    Estate planning isn’t just about the future — it’s about empowering the present. Estate planning includes appointing trusted individuals to handle your finances and health care decisions if you’re ever unable to.
    In general, people are living longer — life expectancy in the U.S. has risen from approximately 61 years in 1940 to over 79 years today.  As individuals age, many may find themselves unable to manage day-to-day finances or make critical health decisions.
    With tools like a power of attorney and health care proxy, you can empower the people you trust most to step in when needed and ensure your wishes are honored keeping these deeply personal decisions out of the hands of the state.
    A power of attorney allows you to select someone to make financial decisions on your behalf, while a health care proxy ensures your trusted advocate can make critical health-related choices when you cannot.

    What to learn from high-profile estate mistakes

    High-profile disputes serve as powerful cautionary tales, even for those of us outside the spotlight.
    For example, Aretha Franklin’s music will live on as her legacy, but her estate planning mistakes have kept her family in court for years. Thirty years after Bob Marley’s death, his heirs were still battling over the singer’s estate in court, and when Kurt Cobain died by suicide in 1994, he did so without a will, so the State decided the fate of his estate, now valued at more than $400 million.
    These families endured costly legal battles and are extreme examples, but they highlight an important lesson: no matter the size of your estate, planning is essential.

    Having a plan allows your family to know what you want and gives them a roadmap to carry it out. Therefore, having that will and an estate plan in place will give your family the ultimate gift: a plan that leaves no question unanswered.
    Creating a plan is not just about dividing assets; it’s about showing love and responsibility for the people who mean the most to you. While no plan can promise to prevent all family conflicts, it will undoubtedly place your loved ones in a far better position than leaving things to chance — or the courts.
    By putting these essential documents in place, you can experience the joy of knowing you’ve taken control of your legacy in both life and death.
    — By Lawrence D. Sprung, a certified financial planner and founder/wealth advisor at Mitlin Financial Inc. More

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    CFPB finalizes rule to remove estimated $49 billion in medical debt from credit reports

    The Consumer Financial Protection Bureau has finalized a rule that will remove an estimated $49 billion in medical bills from credit reports.
    With the change, Americans with medical debt could see their credit scores increase by an average of 20 points, the CFPB reported.
    Vice President Kamala Harris also announced more than $1 billion in medical debts have been eliminated.

    sturti | E+ | Getty Images

    The Consumer Financial Protection Bureau on Tuesday announced it has finalized a rule to remove about $49 billion in medical debt from credit reports, a change that will affect an estimated 15 million Americans.
    Individuals who have medical debt on their credit reports may see their credit scores increase by an average of 20 points following the rule, according to the CFPB. It said the change is also expected to result in the approval of about 22,000 additional affordable mortgages every year.

    With the rule, consumer reporting agencies will be prohibited from including medical debt information with credit reports and credit scores sent to lenders. In addition, creditors will no longer be able to use certain medical information for lending decisions. The CFPB proposed the rule in June.
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    More than 100 million Americans struggle with medical debt, which comprises the largest type of debt in collections ahead of auto loans, credit cards and utilities, according to the Biden-Harris administration.
    Consumers are often asked to pay balances that should be covered by health insurance or financial assistance programs, and also frequently report receiving inaccurate medical bills, according to the CFPB.
    The consumer finance watchdog agency’s move comes after its own research found medical bills on credit reports are not good predictors of whether someone will repay a loan.

    “People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

    A 2022 report released by the agency found medical bills accounted for $88 billion of debts reported on credit reports as of June 2021. Following those findings, the three major credit reporting agencies — Equifax, Experian and TransUnion — took some types of medical debt off credit reports, such as debts under $500. Credit scoring companies FICO and VantageScore also moved to de-emphasize the impact of medical debt on credit scores.

    More than $1 billion in medical debt eliminated

    Along with the finalization of the CFPB rule, Vice President Kamala Harris announced that more than $1 billion in medical debt has been eliminated for more than 750,000 Americans in certain states, counties and cities.
    Residents have had medical debt eliminated in states including New Jersey and Connecticut; counties including Cook County, Illinois; Lucas County, Ohio; Wayne and Oakland counties, Michigan; and cities including Cleveland and Toledo, Ohio; New Orleans; St. Paul, Minnesota; and Washington, D.C.
    Up to $7 billion in medical debt may be eliminated for almost 3 million Americans by the end of 2026 with the support of the American Rescue Plan Act, legislation that was enacted in 2021.
    “No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris said in a statement.

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    This 401(k) plan feature is a ‘green light to contribute aggressively,’ advisor says

    If you’re eager to max out your 401(k) plan early in 2025, you could miss part of your employer’s matching contribution without the “true-up” feature.
    The true-up deposits the rest of your company’s 401(k) match if you max out employee deferrals before year-end. 
    Roughly 67% of 401(k) plans that offer matches more than annually had a true-up in 2023, according to a yearly survey by the Plan Sponsor Council of America in December.

    Gipi23 | E+ | Getty Images

    A penalty ‘for maxing out too early’

    Lump-sum investing, or putting larger amounts of money to work sooner, maximizes time in the market, which can increase growth potential, according to research from Vanguard released in 2023.    
    But it’s important to understand your 401(k) plan before front-loading contributions, because not all plans offer a true-up feature, experts say.

    Roughly 67% of 401(k) plans that offer matches more than annually had a true-up in 2023, according to a yearly survey released by the Plan Sponsor Council of America in December.

    Clients have been “penalized for maxing out too early” without a true-up, which meant “leaving money on the table,” said CFP Ann Reilley, principal and CEO of Alpha Financial Advisors in Charlotte, North Carolina. She is also a certified public accountant.
    For example, let’s say you’re under age 50, making $200,000 per year, and your company offers a 5% 401(k) match without a true-up.
    With 26 pay periods and a 20% contribution rate, you’ll reach the $23,500 deferral limit for 2025 after 16 paychecks and only receive about $6,200 of your employer match. In this case, you’d miss roughly $3,800 of your employer 401(k) match by maxing out early without a true-up.
    You can learn more by checking your 401(k) summary plan description, which outlines key details about the account, Reilley said.  

    Higher deferrals, catch-up contributions for 2025 

    Of course, many investors can’t afford to max out employee deferrals amid competing financial priorities.  
    Only about 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s 2024 How America Saves report, based on data from 1,500 qualified plans and nearly 5 million participants.
        More

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    Social Security Fairness Act brings retirement changes for nearly 3 million public pensioners. Here’s what that means for retirees

    The Social Security Fairness Act has been signed into law by President Joe Biden.
    The law eliminates two provisions, the Windfall Elimination Provision and the Government Pension Offset, that reduced Social Security benefits for some public pensioners.
    Here’s how that affects retirement planning for almost 3 million beneficiaries.

    President Joe Biden after he signed the Social Security Fairness Act at the White House on Jan. 5 in Washington, D.C. 
    Kent Nishimura | Getty Images News | Getty Images

    President Joe Biden on Sunday signed the Social Security Fairness Act into law, clearing the way for nearly 3 million public workers including teachers, firefighters and police to see an increase to their Social Security benefits.
    Now, two provisions that reduced Social Security benefits for certain public workers who receive pensions — the Windfall Elimination Provision, or WEP, and the Government Pension Offset, or GPO — have been eliminated.

    The WEP and GPO were put in place more than four decades ago. When the provisions were created, the goal was to ensure that workers who earn public pensions from employment where they did not pay into Social Security, but who also qualify for Social Security benefits through other work, receive the same payout as workers who pay into Social Security for their entire careers.
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    The WEP was enacted in 1983 and reduces Social Security benefits for some workers who also receive pension or disability benefits from work where Social Security payroll taxes were not withheld.
    The GPO was enacted in 1977 and reduces Social Security benefits for certain spouses, widows and widowers who also receive income from their own government pensions.

    How much Social Security benefits may increase

    The new law affects benefits payable after December 2023.

    More than 2.5 million Americans will receive a lump-sum payment of thousands of dollars to make up for the shortfall in benefits they should have received in 2024, Biden said on Sunday.
    Eliminating the WEP will increase monthly Social Security benefits for 2.1 million beneficiaries by $360, on average, as of December 2025, the Congressional Budget Office has estimated.
    Eliminating the GPO will increase monthly benefits by an average of $700 for 380,000 spouses and by an average of $1,190 for 390,000 surviving spouses as of December 2025, according to CBO.

    “The Social Security Administration is determining the timelines for implementing this new law,” a Social Security spokesperson told CNBC on Monday. “We will provide more information on our website as it becomes available.”
    For now, beneficiaries should make sure the Social Security Administration has their current mailing address and direct deposit information on file, according to the agency. That information can be updated online or by calling or visiting a Social Security office.

    WEP, GPO often came as unpleasant surprise

    The WEP and GPO benefit reductions often came as an unpleasant surprise to affected beneficiaries during the retirement planning process because the provisions were often not well publicized, said Abrin Berkemeyer, a certified financial planner and senior financial advisor at Goodman Financial in Houston.
    “It should be a windfall for quite a lot of folks,” Berkemeyer said of the change.
    For some beneficiaries affected by the change, the extra income will be life-changing, according to CFP Barbara O’Neill, owner and CEO of Money Talk, a provider of financial planning seminars and publications.
    O’Neill, a former Rutgers University professor, has been personally affected by the WEP.
    Once she started to claim her pension, she notified the Social Security Administration. At that point, her monthly benefits were reduced, but it took about five months for the change to be processed, prompting the agency to claw back the benefits she was overpaid during those months.

    Now that the WEP and GPO provisions have been eliminated, that takes away a common source of overpayments, where beneficiaries owe money to the Social Security Administration after receiving more money than they were due. The provisions have prompted overpayment issues due to a lack of available data on pensions from noncovered employment, according to the Congressional Research Service.
    Generally, the elimination of the WEP and GPO will make retirement planning simpler, experts say.
    The extra money the change provides to beneficiaries puts less pressure on them to generate income from other assets they may have, said Michael Carbone, a CFP and partner at Eppolito, Carbone & Co. in Chelmsford, Mass.
    What’s more, it also eliminates the need for the complex calculations the provisions required in order to gauge benefit income, said CFP Andrew Herzog, associate wealth manager at The Watchman Group in Plano, Texas.
    “That certainly makes things easier,” Herzog said. “It gives people a sigh of relief.” More