Americans may soon enjoy greater access to retirement plans and could be able to delay withdrawing their savings, thanks to new legislation advancing through Congress.
While not yet a done deal, the Securing a Strong Retirement Act of 2021 has received bipartisan approval in the House Ways and Means Committee.
“We are now one step closer to improving Americans’ financial security, and hope to see this measure move through Congress and be signed into law in short order,” committee Chairman Richard Neal (D-Mass.) and ranking member Kevin Brady (R-Texas) said after the committee passed the bill last week.
If passed into law, the bill would build upon the changes to retirement law that began taking effect last year under the Secure Act of 2019. Specifically, the new bill would accomplish the following major changes.
These changes — and many others in the bill — would help millions of workers prepare for retirement, ranging from recent college graduates who don’t know where to start to the workers closest to the goal line. It would also help retirees hold on to more of their retirement savings for longer.
To become law, the Securing a Strong Retirement Act will still need to pass both chambers of Congress and receive the president’s signature. The next major step is a full vote in the House of Representatives.
1. Expand automatic 401(k) and 403(b) enrollment
With some exceptions, new employees who become eligible to contribute to these workplace retirement plans would be automatically enrolled in them.
Their initial automatic contribution would be 3% to 10% of their pay, and would increase by 1 percentage point each year until it reaches at least 10%, unless a worker changes the percentage or opts out of contributing altogether.
2. Raise the age for mandatory withdrawals
The Secure Act of 2019 raised the threshold at which people generally must start taking required minimum distributions (RMDs) from their retirement accounts to the year in which they turn age 72.
The new Securing a Strong Retirement Act would further raise that age to 73 starting Jan. 1, 2022, then to 74 starting in 2029, and finally to 75 in 2032.
3. Index the IRA catch-up contribution limit for inflation
Currently, people age 50 and older can make an extra $1,000 in individual retirement account (IRA) contributions, known as “catch-up contributions,” each year. That $1,000 amount is not indexed for inflation, meaning it does not increase when inflation rises.
The new bill would index that amount starting in 2023, allowing it to keep pace with inflation.
4. Increase catch-up contribution limits for some employees
This change would add opportunities to save for employees ages 62-64 who have workplace retirement plans, raising their catch-up contribution limit to $10,000 for most types of workplace retirement plans and to $5,000 for SIMPLE plans.
Those amounts would also be indexed to keep pace with inflation.
5. Enable matching retirement contributions for student loan payments
The Securing a Strong Retirement Act would allow employers to “match” a worker’s student loan payments by making equivalent contributions to the worker’s retirement plan. For example, if you make a $100 student loan payment, your employer could make a $100 contribution to your 401(k).
According to the official bill summary:
“This section is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.”
6. Reduce RMD penalties
As we explain in “3 Tax Penalties That Can Ding Your Retirement Accounts,” current law harshly penalizes those who fail to take their required minimum distributions on time: The amount of the fine is equivalent to 50% of the amount of the RMD they did not take on time.
The Securing a Strong Retirement Act would reduce the penalty to 25%, and provide the opportunity to further soften the penalty to 10% by quickly correcting the mistake and withdrawing the full required amount.
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