New retirement and savings vehicles figure prominently in the Tax Reform 2.0 framework that House Ways and Means Committee Chairman Kevin Brady (R-Texas) released on Tuesday, just in time to give Republican lawmakers a strong pro-growth, pro-savings message to take home to constituents over August recess.
While the overall package, especially the section to make individual and corporate tax cuts permanent, is unlikely to garner enough support in the Senate to pass, chances for enacting potentially meaningful retirement and savings vehicles look much more promising.
“Nearly half of working-age adults say they do not expect to have enough savings to live comfortably in retirement,” Brady said in a statement. “Thanks to the Tax Cuts and Jobs Act, businesses and families now have more money in their pockets. It is the perfect time to help local businesses provide retirement plans to their workers—and to help workers participate in those plans so their retirement years are more secure. Tax Reform 2.0 contains a range of proposals to achieve this."
Brady told reporters his outline has the backing of Senators Orrin Hatch (R-Utah) and Ron Wyden (D-Ore.), the top Republican and Democrat on the Senate Finance Committee.
Wyden told reporters that retirement and savings measures in the package do have significant support in the Senate, but only if they are carved out from the broader tax reform package.
In fact, the retirement savings section of Tax Reform 2.0 already has its own title: Retirement Enhancement and Savings Act (RESA). One focus of RESA is to increase options to allow workers to voluntarily save in tax-deferred retirement vehicles. The bill would make it easier for small businesses to join multiple employer plans, which would be a boon for independent contractors and self-employed workers. The bill would also seek to give employers that sponsor traditional pension plans some relief from tax requirements that have led to the shuttering of those plans.
The tax reform package Brady laid out in broad brush strokes includes the following:
• New family-friendly retirement savings vehicles called USA accounts that would provide tax incentives to households to save, while allowing withdrawals for critical life events. The committee is “creating a new Universal Savings Account to offer a fully flexible savings tool for families,” Brady said. The goal is to help families start saving for retirement earlier and save more throughout their lives, he added.
• Expanded 529 education accounts that would build upon the improvements in the Tax Cuts and Jobs Act so families can also use their education savings to pay for an expanded menu of educational expenses, including the cost of home schooling, apprenticeship fees to learn a trade and the repayment of student debt.
• New baby savings plans designed to allow families to access their retirement accounts penalty-free for expenses when welcoming a new child into the family, whether through birth or adoption. The plans will also allow families to replenish withdrawals to their baby saving plans in the future.