The Senate Finance Committee introduced its counterpart to House-passed legislation that aims to make it easier for Americans to save for retirement.
A section-by-section summary of the bipartisan Enhancing American Retirement Now Act was released Friday by Senate Finance Committee Chairman Ron Wyden, D-Ore. The bill follows the House's passage of the Securing a Strong Retirement Act of 2022, a bipartisan retirement package that would give companies new tools to encourage their employees to enroll in plans while boosting contributions by parents and those nearing retirement age.
Wyden said in a statement that the legislation is a significant step forward, especially for millions of low- and middle-income workers, who are less likely to have adequate retirement savings.
"These workers frequently have physical, demanding jobs and often depend solely on their Social Security income," Wyden said. "Under our reforms, many more workers would access resources for retirement and see meaningful federal retirement contributions year after year."
The Finance Committee is expected to vote on the bill Wednesday, according to a hearing announcement.
Like the House's bill, the Senate's proposal would allow older Americans to delay taking mandatory taxable distributions from their retirement plans. While the House's proposal would increase the age to 73 beginning next year and to 75 beginning in 2033, the Senate's bill would allow older Americans to delay taking distributions until 75 beginning after 2031.
The legislation would also modify the nonrefundable credit allowed for contributions to individual retirement accounts, or IRAs, and retirement plan contributions by changing it from a credit paid in cash as part of a tax refund to a government matching contribution that must be invested into a taxpayer's retirement account. The credit would be equal to 50% of IRA or retirement plan contributions, capped at $2,000 per individual. The credit rate would phase out for joint filers earning between $41,000 and $71,000 and for single filers making between $20,500 and $35,500 and would go into effect for tax years after 2026, according to the bill summary.
Employers would be allowed to provide matching contributions under Section 401(k) and other tax-preferred retirement plans for employee student loan payments, according to the bill summary. The provision would go into effect after 2023.
The bill would also provide an exception to the 10% additional tax that applies to early distributions from tax-preferred retirement accounts. The exception would be for unforeseeable or immediate financial needs related to personal or family emergency expenses, according to the bill summary. The exception would be allowed for up to $1,000 per year, and taxpayers would be able to repay the distribution within three years. Further distributions would not be allowed during the three-year repayment period unless the money had been repaid.
Another provision would waive the 10% penalty for early distributions in the case of eligible distributions to domestic abuse victims, according to the bill summary. Eligible distributions would be capped at $10,000 or 50% of the account balance, whichever is lesser. The 10% additional tax would also be removed for distributions to terminally ill individuals.
Employers would be allowed to provide a small financial incentive to employees who elect to make retirement contributions. Under current law, employers that sponsor tax-preferred retirement plans that provide for elective deferral contributions are generally prohibited from providing any benefit that is conditioned on an employee's decision to contribute or not contribute, according to the bill summary. The House's bill has a similar provision.
Additionally, the bill would permit employers of domestic employees, such as nannies, to provide retirement benefits to those employees. It would also eliminate the additional tax on corrective distributions in cases where too much is contributed to an IRA.
The bill would also reduce the 50% additional tax that applies if a taxpayer fails to receive a required minimum distribution from an IRA or tax-preferred retirement plan to 25%, according to the bill summary. The rate would be further reduced to 10% if the minimum distribution was taken within a correction period, which would generally end no later than the end of the second tax year after the year that the distribution should have been made.
Representatives of Senate Finance Committee Republicans did not immediately respond to a request for comment.
Published on June 21, 2022