The new pension legislation has many advantages

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I am still in favor of encouraging retirement savings, and one of the ways to achieve this is back on the legislative agenda.

House Ways and Means Committee Chairman Richard E. Neal, D-Massachusetts, along with Senior Member Kevin Brady, R-Texas, introduced the Securing a Strong Retirement Act of 2021 to the House of Representatives May 4. The 146-page bill was referred to the Ways and Means Committee, where it was “passed by a voice vote” on May 5. The bill is now before the House Financial Services and Education and Labor Committees.

With bipartisan support, the bill (HR 2954) has a good chance of becoming law. As a financial management professional specializing in retirement portfolios, I see welcome improvements.

Beginning in 2022, all catch-up contributions to qualifying pension plans would be subject to the Roth tax treatment (Section 603). That’s a big change, since now catch-ups can be done on a pre-tax or Roth basis if the plan allows Roths. If a plan offered both, the choice would be with the participant. Under clause 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 employee income 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 in a tax-deferred retirement account. The 2021 catch-up limit on 401 (k) s is $ 6,500 for participants aged 50 or over.

Catch-up contributions on IRAs would be increased by inflation after 2022 (Article 106). These are the additional contributions of $ 1,000 for those 50 and over that apply above the current IRA limits ($ 6,000 for 2021). It’s a plus.

Under section 107, there would be an increase in catch-up from $ 1,000 to $ 10,000 for employer-sponsored plans, but only for people aged 62, 63 and 64. The logic of limiting catching up to this age group escapes me. I would like to see the make-up available to anyone over 50 as long as they are still working.

HR 2954 also deals with Minimum Required Distributions (RMD). As a reminder, the RMD age has been changed to 72 years, from 70 1/2 by the law on the establishment of each community for the improvement of retirement (SECURE) of 2019. The SECURE law has also deleted the age limit for contributions to retirement accounts. Before, you could no longer contribute to an IRA after 70 1/2 years. Now, anyone with earned income can contribute, regardless of age.

The new legislation postpones the starting age for RMDs to 75, but only after 2031. By then, there would be two phased-in periods (74 and 73). From my perspective, with increasing longevity, the more an individual has to increase, not deplete, their retirement assets, the better.

Employer matching contributions 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 401 (k) plan sponsors the option of making employer matching contributions plus Rothlike. The benefit to the employee would be the ability to fund a Roth with the match, which would allow those funds to grow unimpeded from income taxes and capital gains. Apparently there would be no W-2 disadvantage for the employee, unless the match was reported as W-2 income.

Then there is an intriguing provision in the bill (clause 109) which concerns student loans. Employers would pay a match in their 401 (k), 403 (b), or SIMPLE IRA plans when the employee paid off their student loans. The idea is that it would help employees who cannot afford to participate in their pension plan due to student debt.

On tinyurl.com/34f2svte you can find the invoice. You can also provide your comments on this invoice by using a link on the right side of the page to “Contact your member”. If you follow this link, you will find a list of members of Congress that you can contact to express your views.

Julie Jason, JD, LLM, personal fund manager (Jackson, Grant of Stamford) and author, welcomes your questions / comments ([email protected]). Its awards include the 2020 Clarion Award, symbolizing excellence in clear and concise communications. Her latest book, a curated collection of Julie’s Columns, is titled “Safe Retirement: An Insight into Money Management from an Award-Winning Financial Columnist”. To hear Julie speak, visit juliejason.com/events.

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