Bipartisan Tax Law Would Change Retirement Savings
- Posted by Joshua Sells
- On November 17, 2020
- Individual Tax Planning, Ohio Tax Attorney, Retirement Savings, Tax Law Changes
Ohio Tax Lawyer Alert: Bipartisan Legislation Will Change Retirement Plans
There is bipartisan support to make changes to retirement plans. The House Ways and Means Committee Chairman Richard Neal (D-Mass) and Ranking Member Kevin Brady (R-Tex) have introduced the Securing a Strong Retirement Act of 2020.
The Ohio Tax Lawyer opinion: This is good legislation that has a strong chance of being passed – even in a very divided Washington DC.
Automatic 401(k) Enrollment
Workers would automatically be enrolled in a 401(k), 403(b), or SIMPLE workplace plan once they are eligible. Right now, you have to opt-in.
This change means that, by default, you are enrolled automatically if your employer offers these plans.
Additionally, the law would set automatic increases to your contribution, up to a maximum of 10%. Many people fail to increase their contributions, even though they may want to have the extra retirement savings.
Our take on this is that this is a good thing. The default should be savings and the opt-out should be the “option.”
Saver’s Tax Credits
There is currently a saver’s tax credit that provides between 10% and 50% of the first $2,000 contributed to a retirement account. The new proposed legislation would expand this credit. It would now be available to taxpayers with higher incomes and it would be a flat 50% of contributions, instead of being tiered.
The maximum credit would also be increased to $1,500 and indexed for inflation.
Our take on this is that this is also a good thing. We would have liked to have seen a larger credit, but this is better than nothing.
Higher Contribution Limits
Under the proposed legislation, older American’s would be able to contribute an extra $6,500 to their 401(k). These limits would also be adjusted for inflation.
Our take on this is that this is a really good thing. Some older Americans are in a situation where they need the additional contributions to be able to have adequate savings for retirement.
Overall, this legislation gets a “thumbs up” from the Ohio Tax Lawyer staff here at J. M. Sells Law. It is rare for bipartisan legislation that actually accomplishes anything these days, so we will take it!
If you have tax law questions, feel free to ask me – I would love to help!