Congress is moving ahead with bipartisan legislation that could significantly impact taxes related to retirement accounts.

The Enhancing American Retirement Now (EARN) Act has many tax and retirement provisions, including extending the beginning age for required minimum distributions (RMDs) to 75 and allowing 401(k) assets to be used for long-term-care insurance.

Both the Senate and House have passed versions of EARN. It and the Securing a Strong Retirement Act bills are expected to make up SECURE Act 2.0, which is expected to pass later this year.

“We don’t know at the moment what final legislation will look like [but] many of the provisions in the bill enjoy broad support,” said Shamisa Zvoma, a CPA and tax principal at Friedman LLP in New York.

Experts said the changes could generally benefit taxpayers, though some aspects of the bill seem unneeded, such as the provision on matching payments for elective-deferral and IRA contributions. Current law provides for a nonrefundable credit for certain individuals who make contributions to IRAs, employer retirement plans such as 401(k)s and ABLE (Achieving a Better Life Experience) accounts. The proposal would change it from a credit included in tax refunds to a government payment that must be deposited into a taxpayer’s IRA or retirement plan.

“Do you think a couple making $50,000 pre-tax can even afford to contribute to a retirement account?” said Bruce Primeau, a CPA and president of Summit Wealth Advocates in Prior Lake, Minn. “How practical is this provision given how small the government contributions will likely be?”

Morris Armstrong, an RIA and enrolled agent at Armstrong Financial Strategies in Cheshire, Conn., said he has “mixed feelings” concerning the long-term-care insurance funding provision, “but if it makes people feel more secure in the purchase of LTC, it may be worthwhile.”

The EARN Act would allow account holders to take a distribution of up to $2,500 per year for long-term care insurance and be exempt from the 10% penalty for early distributions.

Armstrong also liked the provision for allowing public safety officers to deduct up to $3,000 of medical insurance from their pensions whether the premium was paid by the company or by the pensioner. 

Another provision would let participants in 401(k)s and other tax-preferred retirement plans that allow elective deferrals to contribute an additional $10,000 (indexed) annually beginning between age 60 and 63 ($5,000 for Simple plans), effective after next year.

“The increase in catch-up contributions ... will impact quite a few folks and give them a greater ability to pour more pre-tax dollars into retirement accounts,” Primeau said. “The act also discusses indexing the IRA catch-up limit for those age 50-plus [currently $1,000], which means folks could contribute more to IRA accounts as well.”

SECURE 2.0 would also allow employees to provide matching contributions based on employees' student loan payments.

“The idea of allowing a student loan repayment to qualify for a matching employer contribution has some merit,” Armstrong added. 

Expansion of Roth post-tax contributions to cover SEP (simplified employee pension) and SIMPLE (Savings Incentive Match Plan for Employees) IRAs will allow many clients to take advantage of tax-deferred growth that a Roth IRA offers, Zvoma said. Current law doesn’t permit a Roth option for SEP and SIMPLE contributions. “Employer matching contributions would now also be allowed on a Roth post-tax basis,” she added.

“I really like the idea of having catch-up contributions to employer plans go to the Roth portion of the employer plan,” added Mary Kay Foss, a CPA in Walnut Creek, Calif.

EARN may let advisors help clients in other ways.

The legislation, for example, requires the Treasury to create a "lost and found" database that would help account holders and their beneficiaries to recover assets from employer retirement plans.  

“Many people change jobs these days and their former employers may not know where they are,” Foss said. “This will allow advisors to help their clients find lost benefits.”