I’m always in favor of encouraging saving for retirement, and one avenue for accomplishing that goal is back on the legislative agenda.
House Ways and Means Committee Chairman Richard E. Neal, D-Massachusetts, along with ranking member Kevin Brady, R-Texas, introduced the Securing a Strong Retirement Act of 2021 in the House of Representatives on May 4. The 146-page bill was referred to the Committee on Ways and Means, where it was “adopted by a voice vote” on May 5. Now, the bill is with the House Committees on Financial Services and Education and Labor.
With bipartisan support, the bill (H.R. 2954) has a good chance of becoming law. As a money management professional with a focus on retirement portfolios, I see some welcome improvements.
Beginning in 2022, all catch-up contributions to qualified retirement plans would be subject to Roth tax treatment (Section 603). That’s a big change, since now, catch-ups can be done on a pre-tax basis or Roth if the plan allows Roths. If a plan offered both, the choice would be up to the participant. Under Section 603 of the bill, it appears that pre-tax catch-ups would no longer be possible. As such, I wonder if they would no longer be excluded from gross income for the employee as they are now in pre-tax plans. If that is the intention, a forced Roth limited to catch-ups would be a small price to pay for a retirement vehicle that is tax-free over a tax-deferred retirement account. The 2021 catch-up limit on 401(k)s is $6,500 for participants age 50 or over.
Catch-up contributions on IRAs would be increased by inflation after 2022 (Section 106). These are the additional $1,000 contributions for age 50 and up that apply above current IRA limits ($6,000 for 2021). That’s a plus.
Under Section 107, there would be an increase of the catch-up from $1,000 to $10,000 for employer plans, but only for people ages 62, 63 and 64. The logic of limiting the catch-up to this age band escapes me. I would like to see the catch-up available for anyone over 50 as long as they are still working.
H.R. 2954 also addresses required minimum distributions (RMDs). As a reminder, the RMD age was changed to 72 from 70 1/2 by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The SECURE Act also eliminated the age limit on contributions to retirement accounts. Before, you could no longer contribute to an IRA after age 70 1/2. Now, anyone with earned income can contribute, no matter the person’s age.
The new legislation delays the age for starting RMDs to age 75, but only after 2031. Between now and then, there would be two phase-in periods (ages 74 and 73). From my perspective, with longevity increasing, the longer an individual has to grow, not deplete, retirement assets, the better.
Matching contributions by employers are currently pre-tax in nature; they do not affect the employee’s W-2 income. Section 604, “Optional treatment of employer matching contributions as Roth contributions,” would allow sponsors of 401(k) plans the option of making employer match contributions more Rothlike. The advantage to the employee would be the ability to fund a Roth with the match, allowing those monies to grow unfettered from income and capital gains taxes. Seemingly, there would be no W-2 disadvantage to the employee, unless the match would be reportable as W-2 income.
Then, there is an intriguing provision in the bill (Section 109) that has to do with student loans. Employers would pay a match into their 401(k), 403(b) or SIMPLE IRA plans when the employee paid down their student loans. The idea is that this would help employees who can’t afford to participate in their retirement plans due to student loan debt.
At tinyurl.com/34f2svte, you can find the bill. You also can give feedback on this bill using a link on the right-hand side of the page to “Contact Your Member.” If you follow that link, you will find a listing of congressional members that you can contact to express your views.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (email@example.com). Please visit www.juliejason.com.
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