The Enhanced American Retirement Now Act (EARN) is a proposed legislation aimed at improving retirement savings and simplifying plan administration. As of now, the EARN Act has not been passed. The bill was introduced on June 22, 2022, and its last action was on September 8, 2022, when it was placed on the Senate Legislative Calendar under General Orders. The EARN Act still needs to be voted on by the full Senate; and, if passed, reconciled with the House version, the Securing a Strong Retirement Act, which was passed by the House of Representatives in March.
The EARN Act includes several provisions that can benefit clients in terms of retirement strategies, tax strategies, and estate planning strategies. Here are some key provisions and strategies to consider:
- Secure deferral arrangements: The EARN Act allows employers to provide matching contributions under 401(k) and other tax-preferred retirement plans for employee student loan payments.
- Increased benefit accruals: Employers can increase benefits provided under their retirement plan for a year, up until their tax return due date for that year.
- Retroactive first-year elective deferrals for sole proprietors: This provision allows sole proprietors to make retroactive elective deferrals for their first year of business.
- Reduction in excise tax on certain accumulations in qualified retirement plans: The EARN Act reduces the excise tax on certain accumulations in qualified retirement plans.
- Savers credit: The Act turns the nonrefundable credit for contributions to IRAs, employer retirement plans, and Achieving a Better Life Experience accounts into a government-matching contribution of 50% of the taxpayer’s contribution, up to $2,000 per individual.
Estate Planning Strategies
- Changes to required minimum distributions (RMDs): The EARN Act allows individuals who have attained ages 60, 61, 62, and 63 during the taxable year to make larger catch-up contributions to their retirement plans.
- Removal of RMD barriers: The Act removes certain RMD barriers for individuals with longer life expectancies.
Nick Cantrell, Principal at Green Futures Wealth Management, has been following the course of the EARN act for his clients.
“The EARN Act seems to have something for everyone. The provision allowing employers to provide matching benefits for student loan payments would be a tremendous help to young workers who often forego the free money from their employer match to pay down student loan debt, while the increased catch-up and revised RMD provisions would help older investors. One of the downsides to this Act is that it would increase complexity around employee benefits administration as well as RMD, estate, and retirement income tax planning. Those businesses and individuals who have high-quality financial planning, tax, and legal teams stand to benefit, while I fear that those who are “going it alone” will likely miss out on opportunities.”
Individuals can take advantage of these new provisions by adjusting their retirement, tax, and estate planning strategies accordingly. For example, they can increase their retirement savings through secure deferral arrangements and make use of the saver’s credit for additional tax benefits. Additionally, clients should review their estate plans to ensure they align with the changes brought about by the EARN Act, such as the new RMD rules and catch-up contribution allowances.