Retiring as early as possible is a common goal for many Americans, but actually saving the necessary funds to accomplish this can be a challenge. While standard 401(k) contributions and IRA investing are the most common ways to save for retirement, they are still limited. The Enhancing American Retirement Now act aims to help improve how a person can save for retirement.
What is the Enhancing American Retirement Now Act?
The EARN act was passed by the U.S. Senate and will take effect after 2023. This special act permits employers to match contributions for employee student loan payments in the same regard as other elective deferrals, such as a 401(k).
This bill builds upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Under this new act, the minimum age for distributions to begin from tax-preferred retirement accounts would increase from age 72 to age 75. The excise tax on a missed required minimum distribution (RMD) would also be reduced to 25% from 50%. An exciting feature of this new act that differs from the SECURE act is that it reduces the auto-enrollment into 401(k) that the SECURE act caused. Rather, the EARN act has an auto-enrollment safe harbor with higher deferral and matching contribution rates.
Companies with teams of 100 or less may earn tax credits on their contributions to employees.
How the EARN Act Impacts Taxes
The most significant way the EARN act impacts taxes is through the changes in contribution requirements to tax-preferred retirement accounts. These primary impacts include, but are not limited to:
- The treatment of student loan payments as elective deferrals allowing for matching contributions
- A higher catch-up contribution limit to apply at age 60
- Increases in the age required for mandatory distributions from retirement accounts
- Modifications in participation for long-term, part-time workers
All of the above features help you to make the most of your taxes by increasing the amounts you can deposit into these accounts and the amounts deposited by employers.
How to Make the Most of the EARN Act
The best way to make the most of the EARN act is to understand how the act impacts you specifically. If you have student loans to pay going past 2023, be sure to inform your employer, who should be aware of the new contributions under the EARN act. Additionally, if you are on the older side and are 60-63, be aware of the higher catch-up contributions you are allowed to make. Understand all of these changes and how they impact your taxes specifically.
Bolster your retirement security today
Building your retirement savings should be a top priority always. The last thing you want is to reach your retirement age and have nothing saved up. This is why you should take advantage of every possible benefit that can help bolster these savings, such as the tax subsidies provided by the EARN act if they apply to you. Always seek new ways to lessen your taxes while improving the amount you will be able to retire with to increase the chances of early retirement.
Royal Oak can help you prepare for retirement. Schedule a consultation with a financial advisor to begin discussing your retirement withdrawal and savings plan!