The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Idaho is representative of a common inquiry involving legislative developments that affect retirement savings. The advisor asked:
“What is the latest information on automatic IRAs?”
Highlights of Discussion
- Each year since 2010, an “Automatic IRA Act” bill has been introduced in Congress. This year, on Jan. 22, 2015, Sen. Sheldon Whitehouse (D-R.I.) and Rep. Richard Neal (D-Mass.) introduced two related bills (S. 245 and H.R. 506), both of which are titled The Automatic IRA Act of 2015. The bills have been referred to the Committee on Ways and Means and Committee on Education on the House side, and the Workforce and Committee on Finance on the Senate side.
- if enacted, the legislation would require employers with more than 10 employees that do not currently sponsor a workplace retirement savings plan to enroll their workers in IRAs through an automatic payroll deduction arrangement.
- The employee could choose to contribute to either a Roth or traditional IRA, or purchase a qualified retirement bond.
- Standard IRA contribution and distribution rules would apply, and could include a guaranteed lifetime income option and an additional waiver of the early withdrawal penalty tax during the first 90 days.
- Employees would also have the ability to opt out of the Automatic IRA program.
- Note that the proposed Automatic IRAs are separate and distinct from the My Retirement Accounts (myRAs), which were created by a Jan. 29, 2014, presidential memorandum and are effective for 2014 and later tax year contributions. myRAs are Roth IRAs of limited duration. Once a myRA owner’s balance grows to $15,000, or after 30 years, which ever happens first, he or she must distribute the assets or roll them over to a private-sector Roth IRA. myRAs may only be invested in governmental Retirement Savings Bonds.
Conclusion
The fate of Automatic IRAs is currently in the hands of Congress. Time will tell whether they will become another retirement saving option.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2015 Columbia Management Investment Advisers, LLC. Used with permission.
