Congress is on the verge of pushing retirees' RMDs back to age 75

Retirees who can afford to sit on their nest eggs a little longer to allow more tax-deferred growth could win big from a bill that is sailing through Congress.

The House of Representatives earlier this month overwhelmingly approved a bill that will increase the age that people are required to start withdrawing money from their retirement accounts from 72 to age 75 in three steps over the next 11 years.

The comprehensive retirement bill, called Securing a Strong Retirement Act of 2022 or Secure Act 2.0, passed the U.S. House by a vote of 414 to 5. It's now in the U.S. Senate, where it has bipartisan support.

If it becomes law, Secure 2.0 will be the second time in three years that Congress has raised the age for required minimum distribution, or RMD. It would establish a schedule to raise the age in stages until the year 2033.

The legislation builds on the first Secure Act, which was passed in 2019, and paints a broad brush across the entire spectrum of retirement issues — opening the doors of access to retirement plans for more people, allowing retirement savers to put away more.

The act would require employers to auto enroll workers in retirement plans, which will result in more savings.

It increases the limits on catch-up contributions for older workers and makes special provisions for workers burdened with student loan debt by allowing employers to match the workers' debt payments with contributions to the workers' retirement account.

"This is a recognition that Social Security will likely face challenges," Chaney said. "So, the more assets people can build for themselves the better."

People with enough retirement income to live on can let their IRAs sit in tax-deferred investments and let the balances grow before having to pay taxes on the money if Secure 2.0 becomes law.

The federal government requires retirement account owners to start withdrawing a minimum percentage of the account balance when they reach a certain age so that the person can begin paying taxes on the withdrawals.

For years, the age for RMD was 70½. The Setting Every Community Up for Retirement Enhancement Act, also known as the Secure Act of 2019, increased the age to 72.

Secure 2.0 also encourages more retirement dollars going into Roth retirement accounts. Roth account contributions receive no pre-tax benefit. Money that goes into those accounts are taxed upfront. But account owners can withdraw money from Roth accounts tax-free in retirement.

Under Secure 2.0, starting in 2023, company retirement plan sponsors could allow employees to elect for some or all of their matching contributions be treated as Roth contributions.

"These post-tax contributions, as I understand it, would not be excluded from employees' gross taxable income," Conrad said. "So that's something to be aware of, since currently, company matching contributions in the pretax account is not included in the employees' taxable income."

Catch-up contributions also would increase.

Secure 2.0 keeps the existing 401(k) and 403(b) plan catch-up contribution limits for those ages 50 through 61. But the annual catch-up amount for retirement plan participants ages 62 through 64 increases to $10,000 starting in 2024.

Another change in retirement savings rules — which encourages Roth contributions — is that starting in 2023, all catch-up contributions to employer-sponsored plans must be made to Roth accounts.

Running out of money in retirement worries 63% of non-retirees more than the fear of death, according to a new study from Allianz Life based in Minneapolis.

Kelly LaVigne, vice president of consumer insights at Allianz Life, said the study found pre-retirees are concerned about the current market and aren't sure how they will be able to save enough for retirement.

He believes provisions in Secure 2.0 such as auto enrollment in a 401(k) at 3% and allowing employer matching contributions for workers saddled with student loan debt will address some of the retirement savings gap.