Every year, an increasing number of seniors retire. Many low-income workers find that they have little income to rely on once they retire, and many have no savings at all. They will be almost dependent on Social Security—which is not enough. A bill now in Congress called the Retirement Savings for Americans Act (RSAA)—when it passes, will help many Americans have a more stable and comfortable retirement.
Automatic Enrollment
The RSAA will require employers of low-income workers (full-time and part-time) to automatically enroll their employees in the plan at 3 percent of their income. Employees would have the ability to increase or decrease this amount, or they may even be able to stop contributions when they want.Rep. Lloyd Smucker (R-Pa.), who introduced the bill to the House, says the program would also make employees eligible to get a 1 percent contribution automatically from the federal government. It will be a matching contribution of up to 4 percent, given through a refundable federal tax credit.
The contributions from the government will begin to phase out when the employee starts getting a median-level income. At that time, the account owner retains control but cannot make any new contributions.
Social Security Only Meant to Supplement Retirement Income
Social Security was never intended to replace all other income during retirement. It was designed only to supplement other income, such as pensions and savings. It does provide a way for seniors who have been in the workforce for enough years to have some money coming in once they stop working.It is a good time for a new program such as the RSAA. Social Security is facing a potential shortfall in about ten years, and Congress has not attempted to solve it yet. The Social Security Administration predicts that Social Security benefits must be reduced by about 23 percent in 2034 if Congress does not act.
RSAA Money Supplements Social Security Benefits
The Retirement Savings for Americans Act will not replace Social Security but will provide an additional source of income for workers receiving low incomes. InclusiveWealth says that if seniors with an RSAA account need to apply for additional government benefits, the money in the account will not count toward their eligibility requirements.The Account Owner Owns Everything in the Account
People with these accounts own and control all the money in the account, including the government contributions and money earned from the investments. The government will cover all costs to maintain the fund—not from the individual’s account.There are some conditions in which money may be taken from the account when there are other legal obligations. Congress.gov says you can withdraw money from the account to ensure that child support or alimony gets paid, when a federal tax levy is on the account, or when the Executive Director of the Fund must pay another individual. Other than that, the money is considered nonforfeitable.
The Investment Choices
The Fund Manager will invest all the money in the account to ensure growth. There are six investment options that individuals can choose from, including the following investment funds: Government Securities, Fixed-Income, Common Stock Index, Small Cap Stock, International Stock, and Life-Cycle. If the account owner does not choose an option, they will automatically be placed into the Life-Cycle Investment Fund.Getting Enrolled in the RSAA Program
The program is eligible for qualified workers employed by a business that does not have a retirement plan. Others that for some reason, may be disqualified from participating in the company’s retirement plan, and self-employed independent contractors who do not have a retirement plan may also enroll.The Employers Responsibility
Once the RSAA law passes, employers must create accounts for all their employees. Even when an employee does not want to contribute to the account, the account must exist so that the government can make contributions. Employers that participate will have one year to create the accounts or face a penalty of a percentage of the amount they should have deposited. It is based on the number of days not deposited.Loans From the Account
The owner of the account, or beneficiary, can make loans from the account. Participants must be at least 59½ or have a financial hardship. Before you can get a loan, and after the account manager is notified that you want one, the manager will send a letter telling you how the account balance will be affected.A Portable Account
The RSAA account is completely portable. It will always be attached to the employee.Distributions
When an owner or beneficiary is ready to make withdrawals, they have several choices or may be able to choose a combination of them. They can get a single payment, recurring payments each year, buy an annuity, or transfer the money to an existing retirement account. They can change their choice at any time unless they choose an annuity.The money distributed falls under rules like the Thrift Savings Plan. It is as if it came from a tax-exempt trust and is not part of your taxable wages, so it will not impact Social Security benefits.
Beneficiaries
Because the money belongs to the account’s owner, it will always be that way. The money is passed on to a designated beneficiary when the account owner dies.
The Retirement Savings for Americans Act has not yet passed in Congress. Many individuals and companies are behind its passage because it will benefit so many people. Social Security retirement has proven insufficient in a day when inflation is so high, and the higher costs of everything are making life difficult for seniors.
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
