The Senate Finance Committee held a recent hearing on retirement tax incentives that added momentum for a bipartisan retirement tax bill, but also revealed a growing effort among Democrats to target large individual retirement accounts (IRAs).
Committee members from both parties generally endorsed the House’s bipartisan Securing a Strong Retirement Act of 2021 (H.R. 2954), which passed the House Ways and Means Committee by voice vote earlier this year. The bill builds on the SECURE Act enacted in 2019 and is also known as SECURE Act 2.0. The bill includes tax changes that would:
- Increase the age for required mandatory distributions from retirement plans from 72 to 75
- Index the $1,000 Individual Retirement Account catch-up contribution limit for individuals 50 years or older to inflation beginning in 2022
- Create a higher retirement plan catch-up contribution limit for individuals 60 years or older. The limit would be $10,000 or $5,000 for SIMPLE plans, both indexed for inflation
- Increase the three-year credit for small business pension plan startup costs to 100% for employers with up to 50 employees, capped at $5,000 annually, and providing an additional credit of up to $1,000 per employee for contribution’s made on an employee’s behalf
- Allow small businesses that join an existing multiple employer plan (MEP) to claim the small business pension plan startup cost credit for all three years
- Permit employers to make matching 401(k), 403(b) or SIMPLE IRA contributions for “qualified student loan payments” made by an employee
- Allow 403(b) plans to participate in MEPs under SECURE Act rules, including granting relief from the “one bad apple” rule
- Replace the current tiered rate structure of the Saver’s Credit with a single, 50% rate, increasing the maximum credit to $1,500 per person and raising the income eligibility amount
The discussion during the SFC hearing was representative of the broad bipartisan congressional support, and it has promising prospects for enactment either as part of a larger vehicle or in a year-end effort to move popular bipartisan bills by unanimous consent.
There was less bipartisan agreement on Democratic attacks on large IRAs. Senate Finance Committee Chair Ron Wyden, D-Ore., and House Ways and Means Chair Richard Neal, D-Mass., released data showing that there are at least 29,000 IRAs with at least $5 million. Wyden said he was looking for ideas to curtail “mega-IRAs.”
Dustin Stamper is a managing director in Grant Thornton’s Washington National Tax Office and leads the tax legislative affairs practice for the firm.
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