Seniors Hand In Hand Garry Knight

Source: Flickr user Garry Knight

The White House just hosted a conference on aging that has taken place in every decade since 1961. While the jury is still out on whether or not any legislation that helps seniors will find its way to Capitol Hill, I think bills changing these three restrictions on retirement accounts should be front and center.

No 1: Remove the ceiling on 401(k) contributions
Let's face it. Social Security checks aren't going to cut it.

The average retired worker collects only $1,334 per month from Social Security and that's barely enough to cover housing, let alone pick up the tab for out-of-pocket healthcare costs.

Instead, workers are going to need to sock away more money than ever if they hope to live a financially secure retirement, and one way Congress can help them is to do away with the ceiling on 401(k) and 403(b) contributions.

In 2015, workers can stash $18,000 in these accounts ($24,000 if they're over 50), but why limit them at all? In fact, why restrict the ability to make catch-up contributions to those over 50?

If Congress were to remove those limitations it would mean less money in the IRS' tax coffers, but it would also mean a lot more money gets salted away for retirement by workers during their prime earning years. 

No. 2: Change the 70.5 age restriction on traditional IRA contributions
Advances in healthcare mean that we're living longer and Congress should stop ignoring that fact.

Instead, Congress should acknowledge that more people are living into their 90's by lifting restrictions on traditional IRA contributions to include people in their 70's. According to the Bureau of Labor Statistics, 18% of people age 70-74 are still working, and that number is likely heading higher given that 31.6% of people age 65-69 are working too.

With so many people in their 70's still working, it seems to make a lot of sense to allow them to continue putting money away in a tax deductible IRA, but only if Congress adjusts upward the age for required minimum distributions too. Currently, seniors need to start taking money out of their traditional IRAs by April 1 of the year following the calendar year in which they turn 70.5.

Obviously, changing these rules would mean that the IRS has to wait longer to recapture the deferred taxes associated with traditional IRAs, but given we're all living longer than when these rules were created, it's time to change them

No. 3: Increase the income limit for contributing to Roth IRAs
It's tempting to think that high-income earners will earn high incomes forever, but that's often not the case. Many workers, such as small business owners and commission sales people, see big swings in their paycheck from year to year and restricting their ability to contribute to Roth IRAs during the boom years does little to help them plan ahead for income in retirement.

Currently, people who are married filing jointly (or qualified widowers) can only contribute the full amount ($5,500 in 2015 or $6,500 if you're over 50) to a Roth IRA if they report a modified adjusted gross income of less than $183,000. If you're single, your ability to contribute the full amount to a Roth is eliminated if your income is north of $116,000.

Why Roth IRAs restrict contributions at these income levels is a mystery, and, arguably, these figures seem arbitrary -- especially considering that there are no income restrictions associated with Roth 401(k)'s, which offer the same tax advantages as a Roth IRA and are increasingly becoming available to employees through their employers. Leveling the playing field between Roth IRAs and a Roth 401(k) would seem to be a no-brainer that could allow many workers to better prepare for their golden years.

Congressional gridlock
Admittedly, these changes to retirement savings accounts are long-shots. Congress is better known for gridlock than its willingness to embrace change -- especially, when tax implications are in the mix. That makes me pretty skeptical that these rules will change anytime soon, but maybe, just maybe, I'll be pleasantly surprised. 

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