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Automatic IRAs Proposed in Congress

Approximately half of all Americans work for employers that currently don't have a retirement plan. That works out to be around 78 million employees. This issue, combined with a declining national savings rate and the projected funding problems of the Social Security system, has forced some lawmakers to propose ways to entice Americans to increase their savings for retirement. One example of such proposed legislation is the Automatic IRA.

The Automatic IRA Act of 2013 (H.R. 2035) has been introduced in Congress by Representative Richard Neal (D-MA). The proposed legislation would, if passed into law, create an IRA-based employer retirement plan to allow employees to automatically save for their retirement.

It would require businesses that don’t offer a retirement plan and employ 11 or more employees who earn at least $5,000 in the prior year to set up an automatic IRA savings plan. Employees would be automatically enrolled in the plan unless they opt out. Instead of automatically enrolling employees, the employer could ask the employees to make a choice to participate or not participate in the plan. Any employee who didn’t make a choice would then be automatically enrolled. Not all employees would have to be covered under the automatic IRA plan. For example, employees who have worked less than 3 months or employees under age 18 could be excluded.

The funds would be withheld from the employee’s paycheck and deposited into his or her IRA. The amount that would be withheld would generally be 3%, although a rate between 2% and 6% could be chosen. The funds would be invested in certain required investments, including mutual funds, certificates of deposit, and insurance contracts.

The Automatic IRA program is not a new proposal; it’s been around for a couple of years and has been proposed in the past. It’s unknown whether it will be enacted into law in the future. Check back at The Slott Report for updates.

-By Joe Cicchinelli and Jared Trexler


When the ER doesn't have a qualified plan employees should be allowed to have the same deferral max as qualified plans. Why would we limit them to an IRA amount? Let's get people saving and help them do that.

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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?


IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.