401(k) Savings Plans Get a Boost in Bipartisan Retirement Bill

[question everything]

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.

(snip)

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.

(snip)

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).

More..

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

[dflprincess]

1. The key line being "boost the bottom line of the financial services industry

Last edited Wed Mar 30, 2022, 07:46 PM - Edit history (1)

Boomers must be withdrawing more money than Wall Street thought they would

[nilram]

2. (cough) (cough) higher tax bills (cough)

But, should I live so long and be that prosperous, I'll appreciate the flexibility to delay the RMD.

[lark]

3. This hits me directly and will cost me $$$.

At 70-1/2 I could have started withdrawing what I want and not have to pay extra taxes/fees on it, now I have 1-1/2 years more to have to really watch my pennies. This move just lets Wall St. keep our $ longer, only helps the well off! I hate this, thought I was going to be free by Oct. - NOT.

[question everything]

4. Any time you take money after 59 and a half you have to pay taxes but no fees

And really it is for the healthy and wealthy. We could not wait to retire, had enough. And started taking Social Security at 66 and IRA at 70 and a half because we needed the money.

[lark]

6. I have to file a form every time I take out money to prove this is a retirement account.

It's a total pain in the ass, I have to call my old co. tell them I need this form to be sent to the fiduciary confirming I'm retired from there, then they complete it (sometime later) and send i to the agent and then he processes it and it's a pain in the butt waiting for our money and often requires multiple emails and calls. If not, I get charged fees - such bullshit. At 70-1/2 this was ending, now I have another 2 freaking years and at least twice a year hassles.

[progree]

5. The year one MUST begin REQUIRED minimum distributions -- was 70 1/2, then 72 with the SECURE Act of

a couple years ago, and 75 if this bill passes into law -- are only when one MUST BEGIN taking withdrawals. One can take withdrawals at any age. One must pay taxes on what one withdraws no matter at what age one takes the withdrawals, and whether or not it is part of an RMD requirement or not.

So this is not hurting retirees, just moving to later the year one MUST begin taking RMDs. That's good for retirees, e.g. instead of HAVING TO TAKE withdrawals at 70 1/2 or 72, one will (if this passes) have the OPTION to wait until 75 to begin withdrawals.

Clarification: the above statements apply only to withdrawals from traditional IRAs. Withdrawals are tax-free from Roth IRAs, and there are no RMD requirements for Roth IRAs.

Also, if one takes withdrawals before age 59 1/2, one must additionally pay a 10% early withdrawal penalty.

For inherited IRAs, one must begin RMD withdrawals the year after the original owner passed.

Hopefully this is reasonably correct, if not complete (I didn't cover non-deductible traditional IRAs for example). I am not a financial professional.

[lark]

7. Yes, it can hurt retirees - cause them a lot more work to get their money.

Fuck it - I just hate Congress - always fucking with the middle class. I am retirement age, 70 in 4 weeks, but I still have to jump through hoops to access my money and prove my retirement until I get to the required age unless I want to pay extra fees of hundreds of dollars each time. I am retired from a company that had a retirement plan, and this is what I get - a ton of problems. I think part of it is that the majority of my deposits were made in the last few years I worked there and that causes my issues with the 7 year rule.

[progree]

8. I'm sorry, but I don't see how giving you the OPTION of delaying when you HAVE TO take

Last edited Thu Mar 31, 2022, 11:35 AM - Edit history (2)

some money out beginning at age 75 instead of age 70 1/2 is a problem.

As for some other issues with your 401K plan, I'm sorry, but I just can't see how that has anything to do with pushing back the age one MUST begin RMD withdrawals. Sounds like your 401k plan administrator is an idiot, I never heard of anything like that before. Not something Congress did or is making worse, unless you can show me differently. (EDIT: well, I can believe Congress gave plan administrators too much leeway to devise their own special rules).

I know I'm gurgling with ecstasy at not HAVING to take RMD withdrawals and pay taxes on them for another 4 years.

Late Edit: I do sympathize -- I recently had big problems with the administrators at one of my IRAs, that I could go on for many long paragraphs about. Just off the top of my head:

The bank with my IRA wouldn't let me do a Roth conversion without giving up a CD in that account and replace it with one at the lower market rate. (That would have cost me $200)

And they were about to do it in a way that would have made it a withdraw followed by a contribution -- which would have been illegal and cause me a lot of IRS penalties and premature tax payments.

And they told me that I didn't need a medallion signature guarantee to do a transfer of the IRA to Vanguard. -- Well, something like 4 weeks after Vanguard sent the transfer paperwork to the bank by overnight express, the bank informed Vanguard that it needed a medallion signature guarantee. This on the morning of December 28 -- way too late to get this done before the end of the year, costing me to miss out on several thousands of $$$ in a year when I had a special tax situation.

When I gave them a bad review on their Facebook page, they deleted it a few weeks later... I was careful to keep my review factual and neutral-tone, not naming names etc., not giving them an excuse to do that. And yet they had claimed not to be able to delete all the spammer reviews that gave them positive recommendations (thus enhancing their stars rating), while posting their Forex and other fast-money spam schemes.

[progree]

9. I rolled my 401k into an IRA seamlessly, decades ago. That might be a way around

any dumbass rules your 401k administrator has. And have to fight one battle instead of fighting one every year with them.

I have had no problem with my IRAs at Fidelity and Vanguard in converting to Roth or withdrawing money from them.

[CTyankee]

10. I retired from a lifetime of work in nonprofits and when those finance people started coming around

and telling us how wonderful it would be if we would just "save" xxxx amount of dollars every paycheck and then retire at a decent age with all this money.

The trick was "saving" when you are already working at the low end of the salary range for people working there. Often they had spouses who worked in for profit organizations and would support them with lots more money than if they were a single worker. If you didn't have that kind of support you just could never retire or you could retire and get a part time job.

My husband, luckily, had generous retirement benefits from both his state job and a municipal job when he retired. My mother died and left me her entire estate (my only sibling had pre-deceased her. And THAT was the ONLY way I could retire, which I promptly did at age 67 and 4 months when I could get a slightly higher benefit level.

And don't get me started on the awful age discrimination we faced at that time. They'd hire you to do an impossible job and when you failed to meet their unrealistic demands, you were fired and replaced by someone younger.

DON'T GET ME STARTED!!!