Wall Street wins again with retirement savings
A package of bills included in Congress’ year-end omnibus legislation will allow the richest Americans to park more tax-protected cash in private retirement funds, in a win for giant asset managers like Vanguard and Fidelity .
The SECURE 2.0 Act, an expansion of tax breaks championed in 2019 by House Ways and Means Committee Chairman Richard Neal (D-MA), has been sold as a way to address the savings crisis for retirement. Today, nearly half of American workers I don’t have a retirement account, and many of those who do end up saving very little. According to researchers at Boston College, Americans have a retirement savings deficit exceeding 7 trillion dollars.
But Neal’s legislation is “a deeply cynical gift that expands the deficit,” according to Daniel Hemel, a professor of tax law at New York University. The SECURE 2.0 Act pushes back the age at which savers must start withdrawing their accounts from 72 to 75, giving them more years of tax-free growth. SECURE Act 1.0 was already raised the age for the so-called required minimum distributions from 70½ to 72 just three years ago.
Over the past 50 years, those in the highest income bracket have seen their assets in private retirement accounts grow. PayPal founder Peter Thiel stashed $5 billion in a Roth IRA account, ProPublica discovered last year, joining the thousands of wealthy Americans. avoid taxes legally by maximizing your contributions to retirement plans.
The same period has seen the slow unraveling of Social Security, the public program still provide most of the income to most seniorswhich was founded by President Franklin Roosevelt to protect “against the dangers and vicissitudes of life.”
If no changes are made to Social Security, the reserves are expected to be depleted by 2035, likely meaning Americans would receive only 80 percent of their expected benefits. However, during the last two Congresses, members have been more interested in giving private retirement accounts more tax preferences.
Since the SECURE 2.0 Act passed the House in March and seemed destined to pass later this year, progressive advocates have argued that it should be improved by inserting measures to improve retirement security for disabled and older Americans living in poverty.
To accomplish this, Senators Sherrod Brown (D-OH) and Rob Portman (R-OH) introduced the Savings Penalty Elimination Lawthat would increase asset limits for recipients of Supplemental Security Income (SSI), a federal program that provides monthly income to nearly eight million low-income disabled adults and children.
As a severely tested program, SSI prohibits participants from having more than $2,000 in savings. That asset limit, which hasn’t been updated or adjusted for inflation since the 1980s, means most program participants must stay well below the federal poverty level to receive benefits. Meanwhile, the monthly SSI cash benefit for individuals averaged $585 last year. It is the only source of income for most of the beneficiaries.
“SSI’s archaic, punitive asset limit is the most egregious anti-savings measure in current federal law,” Rebecca Vallas, co-director of the Disability Economic Justice Collaborative at the Century Foundation, told the Perspective. “And yet we continue to see a lack of sufficient political will to allow people with disabilities to save.”
As a severely tested program, Supplemental Security Income prohibits participants from having more than $2,000 in savings.
Brown and Portman’s bill would have adjusted SSI asset limits for inflation and excluded retirement accounts from asset limits, among other changes. It would also come when Americans face higher inflation, which savings could help curb.
Advocates for the poor refrained from publicly attacking the SECURE 2.0 Act while advocating for its inclusion of the Savings Penalty Elimination Act.
Now that they’ve lost that battle, the SECURE 2.0 Act is set to legalize new tax breaks for wealthy savers, without raising savings limits for low-income disabled Americans, some advocates are assessing where the strategy fell short.
“The strategy was to keep the fire on SECURE 2.0, because we could add these other things to it,” Alex Lawson, executive director of Social Security Works, told the Perspective. “We didn’t fight this bad thing, because we thought maybe we could order some table scraps. But then we don’t get the leftovers from the table, and the thing happens without resistance ”.
“The policy we were fighting for is very good, even table scraps can save lives,” Lawson added. “But in terms of magnitude, we’re talking about pennies.”
The omnibus bill does include a crumb for savers with disabilities: an adjustment to the rather ominously named Achieving a Better Life Experience (ABLE) savings program. Tax-incentive ABLE accounts, which require significant legal knowledge to set up, are a loophole in SSI and Medicaid asset limits, allowing disabled individuals to save specifically for disability-related expenses while still remaining eligible for those means-tested programs. .
The omnibus bill would extend the age requirement for ABLE recipients to people whose disability began after age 26. Perspective.
in a Note Posted Tuesday, Morris Pearl, a former managing director of investment company BlackRock who now chairs the progressive group Patriotic Millionaires, condemned the SECURE 2.0 Act as a tax avoidance scheme for wealthy Americans like him. In his case, he wrote, the new changes will leave his heirs with $4 million from his retirement account, an additional $400,000 on top of the $3.6 million he would otherwise have inherited.
“This law will make my heirs hundreds of thousands of dollars richer,” he said in a declaration. “I’m tired of tax cuts for the rich being sold as help for the poor.”