House Tax Writing Committee Releases Bipartisan Retirement Package

[WyomingLife]

Thought this development was interesting and worth keeping an eye on: https://www.rollcall.com/2020/10/27/neal-brady-unveil-retirement-savings-proposal/

The story notes that passage in the upcoming lame duck session is unlikely. It is bipartisan, however, so could move at some point down the road.

 

[Dtail]

Yep, a move to 75 y.o. for the start of RMD can be a good thing for many folks on this site, who aren't dependent on the full required distribution and can continue Roth conversions.

 

[MichaelB]

Thought this development was interesting and worth keeping an eye on: https://www.rollcall.com/2020/10/27/neal-brady-unveil-retirement-savings-proposal/

The story notes that passage in the upcoming lame duck session is unlikely. It is bipartisan, however, so could move at some point down the road.

Perhaps you could give us a summary of the bill and highlight what is most significant for ER Forum community members?

 

[donheff]

Perhaps you could give us a summary of the bill and highlight what is most significant for ER Forum community members?

From the article:

House Ways and Means Committee leaders introduced a long-awaited bipartisan collection of retirement savings incentives on Tuesday, building off another sweeping package enacted late last year.

The new proposal, intended to lay the groundwork for action next year if not in a postelection lame-duck session, would among other things expand and enhance the saver’s credit for lower-income households.

The bill would also increase the age for required minimum distributions from 401(k)s and other tax-favored retirement plans from 72 to 75 years old, adding options for older savers wrestling with weak stock market returns and low interest rates amid the coronavirus pandemic.

The 132-page draft bill won plaudits from financial services associations, and its inclusion of provisions from a Senate bill foreshadows bicameral support for the package.

In one long-sought change, the bill would allow employees to count student loan repayments toward their employers’ matching contribution for a retirement account. The IRS in 2018 ruled that health care products company Abbott Laboratories could offer such a plan to its employees, which the legislation would codify and incentivize other companies to do the same.

Other provisions would require employers offering a new retirement plan to automatically enroll eligible employees; boost limits for catch-up contributions to retirement plans by workers who have reached age 50 from $6,500 a year to $10,000; and enhance an existing tax credit for small employers starting a workplace plan sweetened by a new tax credit of up to $1,000 per employee.

The “baby boomer catch-up” provision, which increases how much people who have reached 50 years of age can contribute to their plan, is a welcome feature, said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute. “According to our research, 45 percent of baby boomers have zero retirement savings,” he said.

 

[WyomingLife]

Cut and pasted from the House Ways & Means press release (source: https://waysandmeans.house.gov/medi...bipartisan-legislation-strengthen-americans):

"The Securing a Strong Retirement Act of 2020 will:

"Promote savings earlier for retirement by enrolling employees automatically in their company’s 401(k) plan, when a new plan is created;

"Create a new financial incentive for small businesses to offer retirement plans;

"Increase and modernize the existing federal tax credit for contributions to a retirement plan or IRA (the Saver’s Credit);

"Expand retirement savings options for non-profit employees by allowing groups of non-profits to join together to offer retirement plans to their employees;

"Offer individuals 60 and older more flexibility to set aside savings as they approach retirement;

"Allow individuals to save for retirement longer by increasing the required minimum distribution age to 75;

"Allow individuals to pay down a student loan instead of contributing to a 401(k) plan and still receive an employer match in their retirement plan;

"Make it easier for military spouses who change jobs frequently to save for retirement;

"Allow individuals more flexibility to make gifts to charity through their IRAs;

"Allow taxpayers to avoid harsh penalties for inadvertent errors managing an IRA that can lead to a loss of retirement savings;

"Protect retirees who unknowingly receive retirement plan overpayments; and

"Make it easier for employees to find lost retirement accounts by creating a national, online, database of lost accounts."

The press release is here: https://waysandmeans.house.gov/medi...w-bipartisan-legislation-strengthen-americans

A detailed section by section summary is here: https://waysandmeans.house.gov/site...files/documents/2.0Sectionbysection_final.pdf

And the bill itself is here: https://waysandmeans.house.gov/site...ns.house.gov/files/documents/NEAL_060_xml.pdf

The House of Representatives and White House have been negotiating for weeks on another pandemic-related recovery/stimulus package, of course, with no success. Many political observers expect that Congress and the White House -- whether in the upcoming lame-duck session or early in 2021 -- will eventually enact another such law, particularly given the state of both the pandemic and economy. And in that scenario, this tax bill could possibly be tacked onto such a broader relief bill, and thus become law. So this tax bill isn't just another tax bill; it potentially has legs.

YMMV

 

[Midpack]

The bill would also increase the age for required minimum distributions from 401(k)s and other tax-favored retirement plans from 72 to 75 years old, adding options for older savers wrestling with weak stock market returns and low interest rates amid the coronavirus pandemic.

+1. I assume this would be popular here (me included) if enacted - until/unless tax rates change radically.

 

[statsman]

The “baby boomer catch-up” provision, which increases how much people who have reached 50 years of age can contribute to their plan, is a welcome feature, said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute. “According to our research, 45 percent of baby boomers have zero retirement savings,” he said.

I'm sorry, but if someone has zero retirement savings at age 50, these changes will do little, if anything, to make that change.

 

[MrsHaloFIRE]

Agree with statsman. Ppl with no retirement savings arent going to overnight come up with regular and catchup contributions overnight bc of an epiphany

 

[Markola]

I'm sorry, but if someone has zero retirement savings at age 50, these changes will do little, if anything, to make that change.

+1. Tax fiddling is not going to convert many people from being non savers to savers. Personally, I wish Congress would put as much energy into shoring up Social Security, which would be a more efficient way to help many more people.

 

[pacergal]

+1. Tax fiddling is not going to convert many people from being non savers to savers. Personally, I wish Congress would put as much energy into shoring up Social Security, which would be a more efficient way to help many more people.

+1

 

[sengsational]

Allow taxpayers to avoid harsh penalties for inadvertent errors managing an IRA that can lead to a loss of retirement savings;

This sounds a good thing, but I didn't read the details. There are "oopsie's" that can be devastating. But these tend to bring in loophole strategies, like making several Roth conversions and recharacterizing all but one. They had to close that loophole.

 

[jkern]

I'm sorry, but if someone has zero retirement savings at age 50, these changes will do little, if anything, to make that change.

The article doesn't state how many of that 45% have a pension. My wife of four years had virtually nothing in a retirement plan until age 54. She is planning on receiving a healthy pension and SS. She's been saving in her 457 for the last 4 to 5 years. That money will become her emergency reserve upon retirement.

 

[Animorph]

I'd like to eventually see 401k accounts that follow an individual rather than Megacorp-run accounts. How hard can it be to make direct deposits into something just like a Solo 401k instead of a corporate 401k? I'm sure companies would also prefer not to deal with 401k expenses, especially small companies. It seemed really difficult and expensive for my small company to set up its 401k plan. But when I retired I could start a Solo 401k at Fidelity for free, and have access to their full line of stocks, ETF's, and funds. Seems nutty to me.

Same thing for health insurance. Why must it be job-based? We could just have companies contribute to the health insurance account selected by the individual. If the job ends, the individual can continue indefinitely with the same plan by making the full payment. Find a new job and the new company can begin making payments to the account. No need to change health plans and doctors at the will of your company or your job status. So much easier. And everyone would know how much their healthcare actually cost if they could see the company payments going into the account.

Not that I'm complaining about no RMD's until 75!

 

[Bryan Barnfellow]

The idea of having student loan payments count toward the match requirement for 401(k)s seems especially helpful. What would be the incentive for companies to offer this benefit?

-BB

* Edit: hey, my 700th post!

 

[Dtail]

The idea of having student loan payments count toward the match requirement for 401(k)s seems especially helpful. What would be the incentive for companies to offer this benefit?

-BB

* Edit: hey, my 700th post!

You will get an extra star with 300 more posts.

 

[harley]

I'd like to eventually see 401k accounts that follow an individual rather than Megacorp-run accounts. How hard can it be to make direct deposits into something just like a Solo 401k instead of a corporate 401k? I'm sure companies would also prefer not to deal with 401k expenses, especially small companies.

IMO that would pretty much kill the matching option than [-]most[/-]/[-]many[/-]/some 401k plans have. I'm not sure if that's worth the trade off.

 

[Midpack]

I'd like to eventually see 401k accounts that follow an individual rather than Megacorp-run accounts. How hard can it be to make direct deposits into something just like a Solo 401k instead of a corporate 401k? I'm sure companies would also prefer not to deal with 401k expenses, especially small companies. It seemed really difficult and expensive for my small company to set up its 401k plan. But when I retired I could start a Solo 401k at Fidelity for free, and have access to their full line of stocks, ETF's, and funds. Seems nutty to me.

Same thing for health insurance. Why must it be job-based? We could just have companies contribute to the health insurance account selected by the individual. If the job ends, the individual can continue indefinitely with the same plan by making the full payment. Find a new job and the new company can begin making payments to the account. No need to change health plans and doctors at the will of your company or your job status. So much easier. And everyone would know how much their healthcare actually cost if they could see the company payments going into the account.

I suspect you know the answer to both. Employers have zero interest in making it easier for employees to change employers, pretty obvious.

 

[Koolau]

+1. Tax fiddling is not going to convert many people from being non savers to savers. Personally, I wish Congress would put as much energy into shoring up Social Security, which would be a more efficient way to help many more people.

I think that conclusion would be considered debatable. Shoring up SS would typically mean increasing funding for SS. Traditionally this has been done through more taxation of workers/employers and/or changing when SS payments become available.

It appears that most of the provisions regarding qualified savings plans would depend upon individual decisions of how much to save and when to withdraw. I'm guessing the qualified savings plan changes would be more popular than the the likely SS changes but YMMV.

 

[Amethyst]

Baby boomers only wish they were still 50.

The “baby boomer catch-up” provision, which increases how much people who have reached 50 years of age can contribute to their plan, is a welcome feature, said Paul Richman, chief government and political affairs officer at the Insured Retirement Institute. “According to our research, 45 percent of baby boomers have zero retirement savings,” he said.

 

[RxMan]

Won’t delaying RMD just create larger distribution amounts and higher taxes? I’d like the option to be able to wait longer before taking RMDs but if that money grows for three more years you’ll just have larger RMD amounts and a higher tax burden. Help me out- what am I missing?

 

[braumeister]

Won’t delaying RMD just create larger distribution amounts and higher taxes? I’d like the option to be able to wait longer before taking RMDs but if that money grows for three more years you’ll just have larger RMD amounts and a higher tax burden. Help me out- what am I missing?

You can do other things than RMDs.

For example, make Roth conversions with the money you would have withdrawn as an RMD.

Or make QCDs to drop the balance tax-free and do some good at the same time.

 

[USGrant1962]

Won’t delaying RMD just create larger distribution amounts and higher taxes? I’d like the option to be able to wait longer before taking RMDs but if that money grows for three more years you’ll just have larger RMD amounts and a higher tax burden. Help me out- what am I missing?

If you are worried about marginal tax bracket implications of large RMDs, just take money out earlier. Nothing makes you wait for RMDs - they are what you must take out, now what you can take out.

 

[jebmke]

Won’t delaying RMD just create larger distribution amounts and higher taxes? I’d like the option to be able to wait longer before taking RMDs but if that money grows for three more years you’ll just have larger RMD amounts and a higher tax burden. Help me out- what am I missing?

Distributions are always possible prior to the RMD point. Anyone who has a tax bomb can still siphon off funds prior to RMD age either through normal distributions of conversions.

 

[Chuckanut]

401k's were never supposed to replace the traditional pension. They were supposed to be a supplement.

https://protectpensions.org/2017/01/04/401k-failed-replacement-pensions/

Emphasis added....

In an article published by the Wall Street Journal this week, the creators of the 401(k) reflected on the consequences of the product they promoted. The takeaway: many of the early advocates of 401(k)s now regret the “revolution” they helped to start. As you know if you are a regular reader of this blog, 401(k)s were never designed to be the primary retirement savings vehicle for working families. They were supposed to be a supplement to retirement savings through Social Security and a defined benefit pension. Gerald Facciani, a former head of the American Society of Pension Actuaries, lays it out: “The great lie is that the 401(k) was capable of replacing the old system of pensions.”

Given the above, I would say it's about time our elected representatives got going on updating retirement laws to reflect the current reality of most workers - no pension and a weak 401k plan.

 

[RunningBum]

Won’t delaying RMD just create larger distribution amounts and higher taxes? I’d like the option to be able to wait longer before taking RMDs but if that money grows for three more years you’ll just have larger RMD amounts and a higher tax burden. Help me out- what am I missing?

I haven't given it much thought. I plan to have little or no money in my tIRA when RMD hits. I guess one advantage this gives is a few more years to convert to a Roth rather than be forced to withdraw or do QCDs.