Eduardo T. from New Braunfels, TX asks: Hello Mitch, I saw on the news that Congress is close to passing a new retirement bill. I turn 70 next year and have not started taking withdrawals from my IRA, because I hope to keep working until I’m 75. Will this bill affect me?
Thanks for writing! The short answer to your question is yes, this bill would affect you based on your current working situation and your retirement goals. The measure, known as the Enhancing American Retirement Now (EARN) Act in the Senate and the Secure Act 2.0 in the House, has strong bipartisan support in both chambers and thus looks likely to become law later this year.1
The final details of the bill are still being negotiated, but there are many similarities between the House and Senate versions that appear likely to make it through. One of the provisions that affect you is an increase in catchup contributions for 401(k) and other retirement plans. The new law could raise the amount that people over 50 can contribute to retirement plans by $6,500 a year, for a total of $27,000. But there’s an even bigger catchup allowance of $10,000 starting in 2024 for people ages 62, 63, and 64. The hitch with all of these extra contribution allowances, however, is that contributions would need to be made with after-tax dollars.
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Another big change that would affect you is raising the age for Required Minimum Distributions (RMD). You may recall the Secure Act bill passed in 2019 that raised the RMD age to 72 from 70 ½, and this bill goes a step further with an aim to raise the age to 75 by 2033. The new RMD age would move up gradually, but it would still affect you in that it would become 73 by next year. That would be the age you would need to start making your required withdrawals, even if you’re still working. The RMD age would then move up to 74 by the year 2030 and 75 by 2033.
One feature to note about the raised RMD age is that if you do start making withdrawals later in life, you may end up needing to draw more which could mean a bigger tax burden. The longer you wait to take RMDs, the higher the annual withdrawal you will likely take, so be prepared for potentially higher tax bills.
There are also other features of the new retirement bill that may not necessarily affect you specifically, but still mark meaningful changes. One of them would compel employers to automatically sign employees up for retirement plans, which would make it even easier to contribute to the plan during working years. There could even be a small cash bonus just for signing up for the company retirement plan.
All in all, a bill that aims to get Americans to save more is likely a positive. Time will tell if the bill becomes law, but all signs point to it getting passed by the end of the year.
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1 Wall Street Journal. March 29, 2022. https://www.wsj.com/articles/401k-secure-retirement-bill-house-2022-11648583270
2 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.
3 ZIM may amend or rescind the guide “How to Build Your Ultimate Retirement Portfolio” for any reason and at ZIM’s discretion.
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