The U.S. House of Representatives will soon consider the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, introduced by House Ways and Means chairman Richard Neal (D-MA) and cosponsored by a bipartisan cohort. The Senate Finance Committee has introduced a similar bill, the Retirement Enhancement and Savings Act of 2019, but has yet to act on the legislation.
The SECURE Act is the latest iteration in a series of retirement legislative proposals over the last thirteen years. It mirrors provisions of previous bills to encourage retirement saving and add flexibility for small businesses to form group retirement plans, while including a few new proposals. However, this legislation does not include a comprehensive solution, such as universal savings accounts, to simplify saving for retirement, nor does it remove the tax code’s bias against savings.
Under the current system, a large portion of retirement savings are rightly subject to just a single layer of personal income taxation, but subject to an extremely complex and confusing regulatory structure. For example, there are almost a dozen tax-neutral retirement savings accounts, each with its own set of rules and restrictions. And, saving outside of tax-neutral retirement vehicles is subject to multiple layers of taxation, which reduces the after-tax return to saving. This treatment is nonneutral and creates a bias that favors immediate consumption over saving, the effects of which are harmful to individual financial well-being as well as economic growth.
While similar to previous retirement legislation, the SECURE Act contains some new provisions attempting to expand access to retirement funds. The most significant change is increasing the required minimum distribution (RMD) age from 70½ to 72 for individual retirement accounts (IRA), which would allow workers to grow their retirement account and utilize their retirement savings later in life. The change simply relaxes restrictions on forced distributions from an IRA; workers could still take money from their accounts earlier.
Some of the SECURE Act’s other changes include: requiring certain part-time workers to access employer-provided retirement plans, allowing 529 plans to cover home-schooling and vocation training expenses, and relaxing some regulations relating to community newspaper pensions.
Currently, Americans do not save enough to enjoy their current standard of living, in part due to the unfavorable tax treatment of savings. Expanding and simplifying access to tax-neutral savings would make it easier for people to save. This bill takes a step forward towards expanding retirement savings but falls short of simplifying retirement saving and eliminating the tax code bias against savings that universal savings accounts would achieve.
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