Key takeaways
- Two US representatives are trying to pass a bill that will allow combining Roth IRAs with similar employer plans
- The bill aims to streamline millions of Americans' retirement accounts and reduce fees
- State-sponsored auto-IRAs may help bolster the impact of the proposed legislation
Two US reps on opposite sides of the aisle are attempting to pass legislation to help Americans combine their Roth IRA accounts with similar employer-sponsored plans.
Linda T. Sanchez (D-CA) and Darin LaHood (R-IL) are leading the charge to boost retirement savings by reducing excess fees and streamlining millions of Americans’ retirement accounts.
This bill builds upon the foundation of the Starter-K Act, a crucial component of the SECURE 2.0 retirement package enacted into law in late 2022.
The Act introduced “starter” defined contribution plans, empowering small businesses to provide retirement plans to their employees. With this legislation, more workers can access the benefits of retirement plans, fostering financial security for those previously excluded.
How will the proposed legislation work?
“Our bipartisan bill will allow for the consolidation of assets, reduce the potential for duplicative fees, and bolster retirement savings for families across the country. As workers face rising costs and burdensome interest rates, Congress should continue to find solutions to help workers build for a comfortable retirement.”
Rep. Darin LaHood, R-Ill
If passed, the bipartisan law, supported by the American Retirement Association (ARA), will allow employees to merge their Roth IRA money with similar workplace accounts, including Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s. Current law prohibits such actions.
This would be a big win for millions of Americans with disparate Roth accounts paying sundry fees to multiple companies for the same end result: tax-free retirement dollars.
US Roth IRA account stats
According to the Investment Company Institute, in 2022, 32.3 million (24.6%) of US households owned a Roth IRA. Moreover, employers have increasingly added Roth account options to their retirement savings packages in the past few years.
A 2021 Plan Sponsor Council of America survey found that 88% of employers offered a Roth option, up from 63.1% in 2016. Although just 28% of plan participants contributed, this represented a 10% increase over 2016. But that number could continue to rise due to the advent of state-sponsored Automatic Individual Retirement Accounts, or “auto-IRAs.”
What are auto-IRAs?
Auto-IRAs are state-sponsored programs that automatically enroll eligible employees in a retirement savings plan, and some states allow for Roth contributions. This could lead to an increase in the number of Americans with Roth accounts, making this proposed legislation even more impactful.
Roth accounts can be especially helpful to lower-income individuals and young workers. This is because contributions to a Roth account are made after taxes are taken out, so retirement withdrawals are tax-free.
This can be advantageous for those in lower income tax brackets now as their tax rates may increase as they get closer to retirement.
For those in the early years of their careers, this gives them more time for their investments to grow tax-free, potentially resulting in larger retirement savings.
