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Sens. Warren, Lee Team Up on Retirement Legislation

You couldn’t find two U.S. senators much farther apart on the ideological spectrum than Elizabeth Warren (D-Mass.) and Mike Lee (R-Utah) – but they have teamed up on bipartisan legislation to make retirement savings easier.

Specifically, Warren and Lee have introduced the Graduate Student Savings Act of 2016, which would allow funds from a graduate student’s stipend or fellowship to be deposited into an IRA.

While fellowship or stipend funding currently is taxed as income by federal and state governments, it does not qualify as “compensation” and so cannot be saved in an IRA.

According to a press release, a majority of doctoral students report receiving some of their financial support during graduate school from fellowships or grants, and about a third of all students report that fellowships or grants were their primary source of funding. The median doctoral student takes about seven years to finish a degree – meaning that, for the better part of a decade, a student can be prohibited from saving major portions of her income in a tax-advantaged account. This bill would remove this hurdle so that students and postdoctoral fellows can start saving today.

A doctoral student who puts away $1,500 a year for 5 years of graduate school could have an additional $57,654 at retirement, and a postdoctoral fellow who puts away $3,000 for 3 years on top of that could have an additional $113,253 at retirement (assuming 7.5% interest and retirement at age 65, adjusted for 2% inflation. The graduate student starts saving at 25, the postdoc at 30).

The Graduate Student Savings Act of 2016 is supported by Fidelity Investments; the International Union, United Automobile, Aerospace, & Agricultural Implement Workers of America (UAW); Service Employees International Union (SEIU); National Association of Graduate-Professional Students (NAGPS); TIAA; and Betterment.

A fact sheet about the legislation is here.

The full text of the bill is here.

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