Will I be able to put more money into my 401(k)? If a recent bill called the Securing Additional Value for Every Retirement Saver Act (SAVERS Act) passes through Congress, the answer could be yes. The bill was introduced in the House of Representatives in late April and would still need to pass through the House, the Senate, and be signed by the President before becoming law. The SAVERS Act could (temporarily) open significant doors for enhancing tax-advantaged saving and investing for retirement.
The act proposes to triple – yes – triple! the amount that one would be able to contribute to their 401(k), 457, or IRA. The current (2020) maximum amount that one is able to contribute towards their 401(k) and 457 is $19,500, while the IRA is capped at $6,000. These caps exclude any “catch-up” contributions (e.g. those aged 50 years and older can contribute an additional $6,500 to their 401(k), for a total of $26,000 in 2020).
For the clients of ours that are already maxing out their 401(k), their 457, and IRA simultaneously that are looking for additional tax-advantaged vehicles to save for retirement: this bill will be important to follow because if it becomes law your contribution strategy in 2020 could very likely change (but don’t forget to talk about your strategy with us first!).
But Only Temporarily…
“This sounds too good to be true; there must be some sort of limit.” Yes, there is a limit. Remember when I mentioned “temporarily” earlier? The IRS wouldn’t let too many people defer such a large chunk of their tax bill indefinitely! The SAVERS Act proposes these changes for the tax year 2020.
Typically the amount that the IRS allows you to put into these tax-advantaged vehicles is increased by $500 or $1,000 every few years. If the SAVERS Act were to become law it could potentially present a once-in-a-lifetime opportunity for high-income earners that have the wherewithal to save. Representative Patrick McHenry of North Carolina (who introduced the bill) said, “Every American is feeling the economic impact of COVID-19. We need to give savers the opportunity to shore up the savings they have worked so hard to grow.”. We will continue to monitor the progress of the SAVERS Act and be ready to advise our clients on their retirement contribution strategy if and when it is signed into law.