This bill — the Family Savings Act — would aim to expand opportunities for businesses and workers to participate in retirement plans, and encouraging the use of new and existing tax-preferred savings accounts. A breakdown of its various provisions can be found below.
This section of the bill would create a new tax-preferred Universal Savings Account (USA), which would have an individual annual contribution cap of $2,500. Distributions from a USA would only count as taxable income if they were made in the same tax year as that income was contributed, otherwise distributions wouldn’t be penalized. Contributions in excess of the cap would be taxed, while the tax exemption would be eliminated in the event of prohibited transactions.
Section 529 education savings plans would be expanded to allow the distribution of funds for paying apprenticeship fees as part of a registered apprenticeship program, homeschooling expenses, or expenses that are in addition to tuition at elementary or secondary schools. Up to $10,000 in aggregate funds from Section 529 plans could be used to pay principal or interest on student loans, which would count against the individual’s student loan interest deduction if they claimed it.
New and expecting parents (including adoptive parents) would be able to make penalty-free withdrawals of up to $7,500 from retirement accounts within one year of the child’s birth or legal adoption. They would then be able to make contributions to replenish those retirement funds in the future if they want, up to the amount of the withdrawal.
Other provisions of this section would:
Eliminate the maximum age rule for traditional IRA contributions, effective.
Allow employees with an annuity in a 401(k) or similar plan could transfer it to an individual retirement account (IRA) without paying taxes on the transferred amount.
This part of the bill would establish multiple employer plans (MEPs) with pooled plan providers, meaning that small businesses from different industries would be able to partner together to establish retirement plans that are less costly and burdensome to administer than a single-employer plan (known as an open MEP). Under current law, only closed MEPs are permitted, so participating employers have to share certain attributes like membership in a trade group or operations in a certain region.
Employees over the age of 70 ½ would be excused from having to take required minimum distributions (RMDs) from qualified retirement plans, such as 401(k)s or individual retirement accounts (IRAs) if assets in their combined retirement accounts is under $50,000.