Legislative Changes to Retirement Savings

June 5, 2019

Bipartisan legislation that would make several significant changes to retirement planning is making its way through both the House and Senate. The legislation is a result of the growing retirement income crisis with many Americans struggling to have enough savings to maintain their standard of living in retirement. The House recently approved the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) with overwhelming bipartisan support. The Senate is now posed to review its own versions of the bill, the Retirement Enhancement and Savings Act (RESA) and the Retirement Security and Savings Act.

The SECURE Act was passed in the House by a vote of 417-3 and includes the following:

  • The age for required minimum distributions (RMDs) would increase from 70.5- to 72-years-old.
  • The age limit for contributing to a traditional IRA will be removed and employees over age 70 will be able to contribute to their IRAs.
  • Part-time employees will be allowed to participate in 401(k) plans. Eligibility requirements for part-time employees would be to complete one year of service (over 1,000 hours in one year,) or three consecutive years where the employee completes at least 500 hours of service.
  • The bill allows penalty-free withdrawals from retirement plans for qualified birth or adoption distributions.
  • Small businesses could participate in multiple employer plans (MEPs), which would allow two or more unrelated employers to join a pooled employer plan (PEP) with a designated pooled plan provider (PPP).

RESA contains many of the same provisions as SECURE Act. However, the Retirement Security and Savings Act sets forth other ways to improve the retirement system that are not covered in the SECURE Act or RESA, including:

  • The additional 401(k) catch-up contribution amount would be increased from $6,000 to $10,000 for individuals age 50 and over.
  • Companies could match student loan repayments to their retirement plans.
  • Similar to SECURE, the RMD age would increase to 72 by 2023, then increase again to age 75 in 2030.
  • The bill would create an exception to RMDs for individuals with $100,000 or less in eligible accounts to allow them to continue to save.
  • The penalty for failing to take RMDs would be reduced from 50% to 25%.

In past years, there have been proposed changes to the retirement system that never gained enough traction to make it into law. However, recent bipartisan support for changes has continued to ramp up. As more and more Americans are struggling to save enough to sustain their lifestyles through their retirement, the likelihood that some of these proposals will make it into law is increasingly positive.

For more information, please contact Aronson tax experts Anatoli Pilchtchikov or Michael Adam at 301.231.6200.