Two years after Congress passed legislation that improved the U.S. retirement system, lawmakers’ efforts to improve it further are progressing — albeit slowly.
Measures in both the House and Senate have bipartisan support, building on the 2019 Secure Act, which aimed to increase both the ranks of savers and retirement security. While progress on the proposals has been slow, supporters believe that action will be taken in 2022.
Last month, the House Education and Labor Committee approved the RISE Act (H.R. 5891), a set of retirement-related provisions that fall under its purview. It overlaps with another bill, the Secure Act 2.0 (H.R. 2954), which was approved by the House Ways and Means Committee in May. By voice vote, both were approved unanimously.
The Secure Act altered the age at which required minimum distributions, or RMDs, from retirement accounts must begin to age 72, from 70½. According to the House proposal, those mandated annual withdrawals would not have to begin until age 73 in 2022, then age 74 in 2029, and finally age 75 in 2032.
The Senate proposal, likewise, would raise the RMD age to 75 by 2032. It would also waive RMDs for individuals with less than $100,000 in total retirement savings and reduce the penalty for failing to take RMDs to 25% from the current 50%.
Current law allows retirees over the age of 50 to make catch-up contributions to their retirement savings. In addition to the standard annual contribution limits for 401(k) plans of $19,500 and $6,000 for individual retirement accounts in 2021, those who qualify can contribute an additional $6,500 to their 401(k) or $1,000 to their IRA.
Both the House and Senate proposals aim to increase those amounts, though the details differ slightly. The House provision would index annual catch-up amounts to inflation and increase the 401(k) catch-up to $10,000 for individuals aged 62, 63, or 64. Workers enrolled in SIMPLE plans would be permitted to make $5,000 in catch-up contributions, up from the current $3,000.
The Senate proposal would also index the IRA amount to inflation, but it would be more generous with the 401(k) catch-up contribution of $10,000, which would apply to people aged 60 and older.
The House proposal would also alter the taxation of catch-up amounts in order to offset any revenue losses caused by other provisions.
That is, all catch-up contributions to 401(k) plans and the like would be treated as Roth contributions — that is, after-tax contributions. Workers can choose whether to make pretax or Roth contributions under current law (assuming their company gives them the choice). Furthermore, employers can currently only make matching contributions to pretax accounts. If the employee desired, a provision in the House would allow them to be post-tax (Roth) contributions.
Most companies that offer 401(k) plans will match your contributions up to a certain amount, such as a 100% match for the first 3% you contribute, followed by a 50% match for the next 2%. Employees who are unable to contribute to their retirement accounts due to student loan debt will miss out on company funds.
Employers would be allowed to make contributions to 401(k) plans (and similar workplace plans) on behalf of employees who are making student loan payments rather than contributing to their retirement plan under both the House and Senate provisions.
A House provision would require employers to automatically enroll employees in their 401(k) plan at a rate of at least 3%, with the rate increasing each year until the employee is contributing 10% of their pay. Businesses with ten or fewer employees, as well as new businesses (those less than three years old), would be exempt from the mandate.
The Senate version does not require auto-enrollment, but it does include incentives to encourage businesses to implement it.
A qualified longevity annuity contract, or QLAC, is one option for providing an income stream later in life. When you buy the annuity, you specify when you want the income to begin.
However, the maximum amount that can be put into a QLAC is $135,000 or 25% of the value of your retirement accounts, whichever is less. In both the House and Senate, provisions would remove the 25% cap. The Senate would also increase the maximum amount allowed in a QLAC to $200,000.