Bills are before Congress to enhance retirement savings opportunities in programs such as the Thrift Savings Plan, including opportunities to invest more and to delay withdrawals.
The approaches differ between the House and Senate measures but each version has bipartisan support and the general aim is the same, leading to growing expectations that changes will be enacted, perhaps as soon as in the months ahead and effective with 2022.
Both for example would increase “catch-up contributions,” which are investments in the TSP and 401(k)-type plans above the standard limits that are allowed for investors who are age 50 or older in a given year. Currently, the limit is $6,500.
Under the House approach, that would rise to $10,000 in the years in which the account holder is ages 62, 63 and 64, as kind of an on-ramp into retirement. Under the Senate bill, the amount would increase to $10,000 for those age 60 and older but catch-up contributions could be made only into Roth (after-tax) balances.
Both measures also would increase the age at which certain minimum distributions must be taken, phasing it up from the current 72 to 75 over a period of several years, beginning with those who turn 72 starting in 2022.
The Senate bill further would create an exception for individuals with $100,000 or less in aggregate retirement savings, allowing them to choose to keep saving for retirement at any age. It also would reduce the current penalty for failing to take required distributions from 50 percent of the shortfall amount to 25 percent in most cases, and as low as 10 percent.
Other provisions in one bill or the other would permit penalty-free withdrawals of the greater of $10,000 or half of the value of the account for victims of domestic abuse; allow the rollover of Roth IRA balances into the TSP and similar plans; and exempt money in Roth balances from required distributions during the lifetime of the account holder.