Lawmakers in Washington recently introduced a new piece of legislation that includes several perks for seniors.
The Securing a Strong Retirement Act of 2020, proposed in the House of Representatives by Rep. Richard Neal (D-Mass.) and Rep. Kevin Brady (R-Tex.), could help retirees and workers keep more of their hard-earned savings.
While the bill has not passed yet, there are three suggested changes in the legislation that seniors should keep an eye on if the bill becomes law.
1. New age requirements for RMDs
Required minimum distributions (RMDs) are mandatory withdrawals from your 401(k) or traditional IRA once you reach a certain age. The age at which seniors were required to take RMDs was previously 70 1/2, until the SECURE Act changed it to age 72. Under the new legislation, lawmakers are proposing changing the age requirement again, this time to age 75.
This could be good news for seniors who plan to continue working until their mid-70s or beyond, because it means you can keep your money in your retirement account longer without being forced to take distributions.
Currently, you're generally required to start taking RMDs once you turn 72 years old even if you're still working. Between your wages and RMDs, a higher income could potentially push you into a higher tax bracket. But if the age requirement changes to 75 years old, you may be able to avoid RMDs for a few more years.
2. New account balance limits for RMDs
Another proposal under the new legislation is allowing those with retirement account balances of less than $100,000 to be exempt from RMDs altogether. This change could be beneficial for retirees who are aiming to minimize retirement account withdrawals to help their money last longer.
If you have less than $100,000 in your 401(k) or traditional IRA and you're trying to stretch every dollar, you may opt to rely more heavily on Social Security benefits or other sources of income to give your investments more time to grow. And when you don't have to take RMDs, you can avoid draining your retirement fund too quickly.
3. Higher catch-up contribution limits
If you're contributing to a 401(k) or IRA, you're eligible to start making catch-up contributions when you get closer to retirement. The contribution limits for 401(k)s and IRAs are $19,500 per year and $6,000 per year, respectively. Under the current law, once you turn 50 years old, you can contribute an additional $6,500 per year to your 401(k) and an extra $1,000 per year to your IRA.
The new legislation proposes creating an additional catch-up contribution limit, which would allow workers age 60 and older to save an extra $10,000 per year to their 401(k) or IRA. For super savers, this higher limit could help you head into retirement with a much more robust nest egg.
While it's too soon to say whether this new bipartisan legislation will pass, it never hurts to start thinking about how these changes could affect your retirement. For now, though, just keep saving and doing everything you can to prepare for your senior years.