Ask the Advisor: July 2022

Q:  I was born in 1951 and turn 71 this year.  I understand that a second round of legislation was passed by the House that would increase the age for taking required minimum distributions from a 401(k).  Could you tell me more about the bill and about the status of the bill in the Senate? — L.W., NC.

A:  The Securing a Strong Retirement Act (H.R. 2954) would raise the age at which older adults must take required minimum distributions (RMDs) from traditional 401(k) and IRA retirement accounts, among several other changes that would make it easier to save more for retirement.  There’s a reasonable chance that Congress will pass the bill this year, because of strong bipartisan support, but the final bill may differ in some provisions from the House - passed version.

The RMD age was recently raised from 70 ½ to 72 by the Secure Act of 2019.  This new legislation which passed in the House with a 414 to 5 vote, would increase the age at which you must start taking required minimum distributions (RMDs) from age 72 to 73, starting on January 1, 2023.  It would continue to raise the age for RMDs to age 74 on January 1, 2030, and the age would rise to 75 on January 1, 2033.

It would also address penalties for failing to take RMDs on time.  Under current law if you fail to take your full RMD by your age 72 deadline, you could be taxed 50% on the shortfall.  According to an article co-authored by Jackie Stewart and Joy Taylor of Kiplinger, “That’s one of the harshest penalties you can face from Uncle Sam.”

The bill would also change “catch-up” contributions.  Under current law individuals age 50 and older can make catch-up contributions to their retirement accounts on top of the standard annual contributions limits of $20,500 for 401(k) plans and $6,000 for traditional IRA accounts in 2022.  Older savers who qualify can put in an extra $6,500 in their 401(k) or $1,000 in their IRA.

Under the new legislation employees would be able to make up to $10,000 in catch-up contributions to 401(k) plans. Those enrolled in SIMPLE plans would be allowed $5,000 in catch up contributions up from the current $3,000.  These limits would be indexed for inflation.

TSCL is monitoring the Senate Committees on Finance and on Health, Education, Labor, and Pensions for their version of the “Secure Act 2.0.” which is taking shape.  The Senate has “We expect the legislation may come up for a vote later this fall,” says TSCL’s Executive Director Shannon Benton.


Sources: “Secure Act 2.0: 14 Ways The Proposed Law Could Change Retirement Savings,” Jackie Stewart, Joy Taylor, Kiplinger, April 1, 2022.