House Committee to Consider New Retirement Bill This Week — What Would It Mean for You?

Elderly couple sitting at a cafe

The House Ways and Means Committee is slated to introduce a bill this week that would alter some important retirement provisions.

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One of the more critical provisions in the bill, named Securing a Strong Retirement Act of 2021, is increasing the age at which individuals must begin taking minimum distributions from their retirement accounts from 72 to 75. The bill would also require companies that establish a new 401(k) plan to auto-enroll their employees.

The minimum distribution rule on retirement accounts is as such that if you do not start taking at least a minimum amount of money by a certain age, you can face a monetary penalty. This is to lessen the burden on the investment companies holding these investments, as well as ensure the flow of taxable income to the government. Distributions from most of these plans (except Roth individual retirement accounts and variable life insurance policies) are taxable as ordinary income, which means the government expects a certain percentage of revenue from this age group per year. If every retiree decided to not take any income until they were 80 years old, for example, that would be a significant revenue loss to the government each year.

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The new provision would allow retirees to wait until age 75, which is a considerable change for those planning retirement savings. This would allow people to save more over a longer period, which could mean a lot for your investments. Those extra five years or so of compounded interest could potentially net you more money in the long run, regardless of the taxes you pay upon distribution. Five extra years to save means five extra years of investing and opportunities.

Requiring companies to auto-enroll their employees into newly created 401(k) programs also has significant implications for the potential of employee savings.

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In a conversation with CNBC, Melissa Kahn, State Street managing director of retirement policy, said, “We’ve learned over time … that people who are auto-enrolled are much more likely to stay in the plan.”

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The bill includes a long list of other provisions intended to increase retirement security, including an increase in the maximum catch-up contribution to a 401(k) or IRA for individuals ages 62 to 64. A spokesman for House Ways and Means Committee Chair Richard Neal, the bill’s sponsor, told Pensions & Investments that more information “should be officially posted on Congress’ website soon.”

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About the Author

Georgina Tzanetos is a former financial advisor who studied post-industrial capitalist structures at New York University. She has eight years of experience with concentrations in asset management, portfolio management, private client banking, and investment research. Georgina has written for Investopedia and WallStreetMojo. 
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