Senators Rob Portman (R-OH) and Ben Cardin (D-MD) introduced retirement legislation Monday that would raise the required minimum distribution age from 70.5 to 75.
A required minimum distribution (RMD) is the annual minimum amount that must be withdrawn from certain types of retirement accounts after the individual reaches 70.5 years of age under current law. An exception is the first RMD which must be taken by April 1 following the calendar year during which the individual turns age 70.5.
The required minimum distribution applies to all employer-sponsored defined contribution retirement plans which includes profit sharing plans, 401(k) plans, 403(b) plans, 457(b) plans, and the Thrift Savings Plan (TSP) (both the traditional and the Roth TSP), and traditional IRAs. The RMD rules also apply to IRA-based retirement plans such as SEPs, SARSEPs, and SIMPLE IRAs. But the RMD rules do not apply to Roth IRAs.
If passed, the Retirement Security & Savings Act (S-1431) would increase the RMD age from 70.5 to 72 in 2023 and then to age 75 by 2030. The purpose is to allow individuals choosing to work later in life to keep saving for retirement.
The senator’s legislation has similar provisions to the Retirement Enhancement and Savings Act (RESA) of 2019 introduced on April 1, however RESA only proposes raising the RMD age to 72.
The RESA bill is also similar to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 proposed in the House earlier this year.
The Retirement Security & Savings Act also proposes other reforms to provide more certainty and flexibility for retirees, including:
- Creates an exception from required minimum distributions for individuals with $100,000 or less in aggregate retirement savings, allowing them to choose to keep saving for retirement at any age.
- Reduces the current penalty for failing to take required minimum distributions from 50 percent of the shortfall amount to 25 percent in most cases, and as low as 10 percent, if you self correct.
- Encourages expanded use of Qualifying Longevity Annuity Contracts (QLACs), retirement plans that provide annual payments to individuals who outlive their life expectancy. QLACs prevent older Americans from outlasting their savings.
The bill also includes more than 50 provisions that allow people who have saved too little to set more aside for their retirement, help small businesses offer 401(k)s and other retirement plans, and expand access to retirement savings plans for low-income Americans without coverage.
“Ensuring that families and workers can retire with dignity and stability is an ongoing, and strongly bipartisan, effort. There have been many recent efforts acknowledging this need, yet more work needs to be done to make sure families have the necessary tools to be successful in their retirement,” said Cardin.
“This bill is an important new chapter in my bipartisan work with Senator Cardin to strengthen the private sector retirement system. Since our last comprehensive package became law in 2001, we’ve seen more Americans participate in 401(k)s and IRAs to save for their retirement but our savings rate still remains too low and there are far too many Americans with no retirement account at all,” said Portman.
The bill is supported by the American Benefits Council, AARP, the U.S. Chamber of Commerce, the Insured Retirement Institute, Fidelity, Nationwide, T. Rowe Price, Vanguard, BlackRock, Empower Retirement, TIAA, the Committee for Annuity Insurers, Transamerica, LPL Financial, Edward Jones, State Street Corporation, Paychex, Church Alliance, the Women’s Institute for Secure Retirement (WISER), the International Association of Firefighters, the American Council of Life Insurers, the ERISA Industry Committee, National Association of Fixed Annuities (NAFA), the National Rural Electric Cooperative Association, and the National Association of Government Defined Contribution Plan Administrators (NAGDCA).
To read the full text of the Retirement Security & Savings Act, go here (132-page PDF download).