Judging by their retirement account balances, Americans need more help saving for retirement. And there's a chance they may actually get it soon from Washington, D.C.
That's because the Securing a Strong Retirement Act of 2020 is bipartisan legislation introduced recently by House Ways and Means Committee Chairman Richard Neal (D-Mass.) and Ranking Member Kevin Brady (R-Tex.).
The Securing a Strong Retirement Act of 2020 is an attempt to help America's workers "ensure their well being further down the road," even as COVID-19 has "exacerbated our nation's existing retirement crisis," according to the press release highlighting the legislation.
With bipartisan support, the bill actually stands a chance of becoming law. If it does, here are three big changes that could affect your retirement plans.
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1. Automatic 401(k) enrollment
Currently, many Americans who have access to a workplace 401(k) don't contribute to it. The bill aims to change that by making contributions automatic.
Under the law, workers would be automatically enrolled in a 401(k), 403(b), or SIMPLE workplace plan as soon as they became eligible. While workers could chose to fill out paperwork to opt out, enrollment would become the default.
Employers would have the option to set automatic contributions at 3% to 10% of pay by default, so every worker who didn't act to make changes would end up saving a minimum of 3% of income for retirement. And the law would require employers to increase contribution amounts automatically each year until contributions hit 10% of income.
While automatic enrollment still leaves workers with a choice, past data has shown many people just stick with the status quo when they're signed up to make 401(k) contributions without their input. That means millions more people could end up contributing up to 10% of their income over time if the law passes.
2. Expanded tax credits
Currently, a saver's credit provides a tax credit worth between 10% and 50% of the first $2,000 you contribute to a retirement account, with the exact percent depending on your income. In 2020, married joint tax filers with incomes up to $65,000 and single filers with incomes up to $32,500 are eligible.
The Securing a Strong Retirement Act would expand and simplify this credit. It would be available up to a higher income tier, and anyone who is eligible would receive a credit valued at 50% of their contributions rather than receiving a tiered credit based on income. The maximum amount of the credit would also increase from $1,000 per person to $1,500 per person, and that limit would be indexed to inflation.
3. Higher contribution limits
The bill would also increase the amount of contributions older Americans can make to tax-advantaged retirement accounts.
Currently, those who are 50 or older are allowed to contribute an extra $6,500 to their 401(k) in 2020, while those with a SIMPLE plan can contribute an extra $3,000. These are on top of the standard contribution.
The new bill would provide people who reach the age of 60 with a chance to invest even more with pre-tax dollars. Anyone 60 or older would be eligible to make catch-up contributions of up to $10,000 for a 401(k) and $5,000 for a SIMPLE account. These limits would be indexed to inflation as well.
By providing broader tax credits, automatically enrolling Americans in 401(k)s and making it easier for older Americans to sock away more funds in tax-advantaged accounts, the Securing a Strong America Act would go a long way toward helping workers save more for their future.
With bipartisan support for the bill, there's a very real chance these changes could go into effect and open the door to a more-secure retirement for millions.
