By Ian Berger, JD
Proposals to boost IRA and workplace plan savings are advancing, but they are not law yet. Several actions must occur before the proposals become law.
On March 29, the House passed the “Securing a Strong Retirement Act of 2022.” Now, two different Senate committees are taking up the subject. On June 14, a Senate committee (Health, Education, Labor and Pensions) unanimously approved the “Retirement Improvement and Savings Enhancement to Supplement Health Investments for the Nest Egg Act” (the RISE & SHINE Act). The RISE & SHINE Act deals with company plans only.
Today (June 22), a separate Senate committee – the Senate Finance Committee – is taking up its own bill, called the “Enhancing American Retirement Now Act” (EARN Act). The EARN Act deals with both IRAs and company plans. It is similar to, but not the same as, the House-passed bill.
The Senate Finance Committee is expected to pass the EARN Act. If that happens, the EARN Act and the RISE & SHINE Act will likely be combined into one Senate bill. The combined bill will then be taken up by the full Senate. If passed by the full Senate, the Senate bill will have to be reconciled with the House bill and approved by both houses of Congress before being sent to the President.
These bills are often referred to as “SECURE 2.0” because they expand on the original SECURE Act from December 2019.
Here’s how the House-passed bill and the Senate EARN bill compare on several key changes:
- Both bills would increase the age that traditional IRA required minimum distributions (RMDs) must start. Currently, the first RMD year is age 72. The House bill would delay the first RMD year to age 73 beginning in 2023, 74 in 2030 and 75 in 2033. The Senate EARN bill would change the first RMD year to age 75 without interim changes to ages 73 and 74. However, the change to age 75 would not be effective until 2032.
- Both bills would allow higher catch-up contributions to company plans. The current catch-up limit for those age 50 or older is $6,500. Both bills would increase that limit to $10,000 beginning in 2024. The House bill would apply that limit only to those who are age 62, 63 or 64, but the Senate bill would apply it to those who are 60, 61, 62 or 63.
- For IRAs, the current catch-up limit is frozen at $1,000. Both bills would allow that limit to increase based on the cost-of-living. The House bill would be effective in 2024; the Senate bill would be effective in the year following the year the bill is signed into law.
- Both bills require that any plan catch up-contributions for those over age 50 would have to be made as Roth contributions beginning in 2023 (the House bill) or 2024 (the Senate bill). In addition, plans could allow employees to have employer matching contributions made as Roth contributions. (Currently, employer contributions are made pre-tax.) The House bill is effective after the date the bill is signed into law, while the Senate bill is effective in 2024. These changes are designed to help pay for other provisions of the bills.
- In both bills, the limit on “qualified charitable distributions,” which are tax-free direct transfers from traditional IRAs to charities, would be indexed for inflation. That limit is currently $100,000 per person, per year. This provision would be effective in the year the bill is signed into law under the House bill, or the year after the bill is signed into law under the Senate bill.
- Employers would be allowed to make matching contributions to company savings plans and SIMPLE IRAs on student loan payments beginning in 2023 under the House bill or 2024 under the Senate bill.
- In both bills, the “Saver’s Credit,” a federal tax credit for mid- and low-income taxpayers who contribute to an IRA or company plan, would be expanded but not until 2027.
- Both bills create a new exception to the 10% early distribution penalty for IRA and plan withdrawals by victims of domestic abuse. This would be effective immediately after the provision becomes law. The Senate bill (but not the House bill) would create another exception to the 10% penalty for emergency withdrawals beginning in 2024.
We will keep you informed on the progress of these proposals.