The second major piece of retirement legislation in little more than two years advanced in the House on Tuesday, putting required minimum distributions in line to rise to age 75 over the next decade and increasing the limits on catch-up contributions to retirement accounts for older Americans.
The House of Representatives passed the Securing a Strong Retirement Act, sometimes called the Secure Act 2.0, by a vote of 414-5. Key provisions also include expanding automatic enrollment of workers in qualified retirement plans like 401(k)s and indexing catch-up contribution limits for individual retirement accounts to inflation.
“These changes will make it easier for American families to prepare for a financially secure retirement,” Rep. Richard Neal (D., Mass) said on the House floor. “This is transformative legislation.” Neal introduced the bill with Rep. Kevin Brady (R., Texas).
Earlier Tuesday, the Senate Committee on Health, Education, Labor, and Pensions held a hearing on retirement security. Committee Chairwoman Sen. Patty Murray (D., Wash.) said she and ranking member Richard Burr (R., N.C.) “are now working to pull together bipartisan ideas in this space and move a retirement legislative package later this spring.” Last May, Sens. Rob Portman (R., Ohio) and Ben Cardin (D., Md.) introduced legislation similar to the Secure Act 2.0 called the Retirement Security and Savings Act, but that bill hasn’t advanced through the Senate Finance Committee.
Key provisions of the House bill passed Tuesday include:
● Raising the age at which seniors must take required minimum distributions, or RMDs, from their retirement savings accounts to 73 from 72, effective next Jan. 1. The bill will raise the age to 74 starting in 2030 and to 75 starting in 2033.
“For high-income individuals, the required-minimum-distribution age being pushed out further is going to be very attractive,” said Lisa Featherngill, national director of wealth planning at Comerica Bank.
The RMD age was raised to 72 from 70½ by the Secure Act of 2019.
● Increasing the limits on so-called catch-up contributions for employees ages 62 to 64. In 2021, these workers were allowed to contribute up to $6,500 to their retirement savings plans beyond the otherwise applicable limits. This bill increases that limit to $10,000, beginning in 2024, and indexes it to inflation.
● Indexing the catch-up contribution limit for IRAs to inflation, beginning in 2024. Currently, savers ages 50 and up may contribute an additional $1,000 annually to their IRAs, but that limit isn’t indexed to inflation.
● Expanding automatic enrollment of workers in employer-sponsored retirement saving plans. Beginning in 2024, employees would be automatically enrolled in plans such as 401(k)s and 403(b)s unless they opt out. Workers’ initial automatic contributions would be between 3% and 10% of pretax earnings, and that amount would be increased by 1% each year until reaching 10%.
All current 401(k) and 403(b) plans are “grandfathered,” meaning they don’t have to comply with this provision. There’s also an exception for businesses with 10 or fewer employees, businesses that have existed for less than three years, church plans, and governmental plans.
● Allowing employers to match a worker’s student loan payment by making an equivalent contribution to that worker’s retirement savings plan. This provision, which will take effect Jan. 1, is intended to help workers who can’t afford to save for retirement because of high student-loan debt, which causes them to miss out on their employers’ matching contributions to retirement savings plans.
● Creating an online, searchable “retirement savings lost-and-found database” at the Labor Department to help workers and retirees find their lost retirement accounts, including those from previous employers.
● Enhancing the Saver’s Credit, which incentivizes low- and middle-income Americans to save for retirement with a tax credit of up to $1,000 annually. Currently, these workers can qualify for a tax credit of 50%, 20%, or 10% of their contributions to a qualified retirement plan, up to $2,000, based on their income level.
This bill does away with that tiered credit percentage by creating a single credit rate of 50%, beginning in 2027. It also directs the Treasury Department to increase public awareness and use of the Saver’s Credit.
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