401(k) Savings Plans Get a Boost in Bipartisan Retirement Bill [View all]

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Americans could stash more in their 401(k)s and sit on their nest eggs longer under a House bill that aims to boost individual retirement savings. The bill, passed Tuesday by a vote of 414 to 5, raises contribution limits for older workers, and lets companies offer employees a small cash bonus just for signing up for the retirement plan. The bipartisan measure, which some are referring to as Secure Act 2.0, would build on retirement-policy changes enacted in 2019 that, among other things, raised the age people were required to start withdrawing money from retirement accounts to 72 from 70½.

If passed by the Senate and signed into law, the bill would raise the age again over the next decade to 75—a change that would also boost the bottom line of the financial-services industry, which typically earns fees based on the size of retirement accounts. Senators are likely to consider changes to the House bill, and they could then add it to a larger piece of legislation later this year.

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The legislation would gradually increase the age at which savers must start taking withdrawals from 401(k)-type accounts and traditional individual retirement accounts to 73 next year, rising to 74 in 2030 and 75 in 2033. Currently, people who save money in those accounts must begin withdrawing money—and paying any taxes due on it—at 72. These required withdrawals can be a source of frustration for taxpayers who are still working or are trying to make their savings last in retirement.

While the law, if enacted, would help people who can afford to leave their money untouched, it could expose them to higher tax bills in future years. When required distributions kick in, they would be withdrawing more money annually over a smaller time period, said Ed Slott, an IRA specialist. The increase in the age for required withdrawals “sounds better than it is,” he said. About 80% of people subject to mandatory retirement account distributions withdraw more than the required minimum because they need the money, said Mr. Slott.

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The bill would generate about $36 billion, according to congressional estimates, to help pay for itself in the next decade, in part by requiring workers ages 50 and older who make extra contributions to 401(k)-style plans starting in 2023 to do so through Roth accounts. These require people to contribute after-tax money, forgoing the tax deductions they would get with a traditional 401(k).

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https://www.wsj.com/articles/401k-secure-retirement-bill-house-2022-11648583270 (subscription)