EARN Act advanced by the Senate

On June 23, 2022, the Senate Finance Committee advanced the Enhancing American Retirement Now (EARN) Act. The bill, which has bipartisan support, builds upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Next, the bill will go to the Senate floor where provisions in a separate bill, the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act, approved by the Senate Health, Education, Labor and Pensions (HELP) panel, may be included. The Senate has not specified a date when it will consider the EARN Act.  

The EARN Act is the Senate’s response to the Securing a Strong Retirement Act of 2022 (SECURE 2.0) passed by the House of Representatives in March 2022. Although the Senate and House versions have many similarities, there are some differences which are noted below.  

The following highlights the provisions within the EARN Act: 

Changes to required minimum distributions 

• Tax-preferred retirement savings plans and IRAs are generally required to begin distributions once the account owner reaches age 72. The EARN Act would increase the age at which required minimum distributions must begin to age 75 from age 72 for calendar years starting after Dec. 31, 2031. This contrasts with SECURE 2.0 which increases the RMD age to 75 from 72 gradually over a 10-year period.  
• The EARN Act would also reduce the excise tax on a missed RMD to 25% from 50%. The excise tax could be further reduced to 10% if the RMD is taken within the correction period, generally two years.  

Catch-up contributions 

• The EARN Act would require catch-up contributions to certain employer-sponsored qualified retirement plans to be designated Roth contributions. Although this provision is included in SECURE 2.0, the effective date would be for taxable years beginning after Dec. 31, 2023, rather than one year earlier as in SECURE 2.0. Catch-up contributions to IRAs would continue to be pretax but are significantly less than catch-up contributions to employer-sponsored plans ($1,000 versus $6,500.) 
• Individuals who have attained age 50 are permitted to contribute a catch-up contribution to their IRAs. Under existing law, the catch-up amount is $1,000 and is not indexed. This would be effective for taxable years after the date of enactment.