New Bill Aims to Solve for the Retirement Plan Coverage Gap
One in four Americans does not have any retirement savings. This situation may be due at least partly to not having access to an employer-sponsored retirement account.1 The introduction of the Portable Retirement and Investment Account (PRIA) Act of 2021 aims to create portable retirement and investment accounts for all Americans.2 The proposed PRIA is designed to expand access to retirement savings vehicles and hopefully make it easier for American workers to save for retirement.
What is the PRIA Act?
The PRIA Act aims to provide workers with a 401(k)-like option instead of simply an individual retirement account. If passed, this legislation creates a PRIA board that must establish regulations and manage the PRIA fund on behalf of its beneficiaries. This board works similarly to the management structure of the Federal Thrift Savings Plan.3
Under the PRIA Act, the director may invest each held retirement account into a target-date fund based on the account holder's age. Once the assets held in the target-date fund achieve a particular threshold, the director contracts with an entity to act as trustee and manage the investments. The account holder may change their account to a PRIA Choice Account, which allows them to select their investments. Alternatively, the account holder may transfer the funds to their investment retirement account once the account balance hits $15,000 or higher.3
Individuals who open a PRIA account with a contribution of $500 may receive $50 from the government as a deposit into their account whenever the account holder finishes financial literacy training. Employers may contribute to a PRIA account on their employees' behalf, whether in place of increased pay or a bonus, or other performance incentives. 3
Like 401(k)s, PRIA account holders may contribute to their accounts by having funds withheld from their paychecks through direct deposit. Employers may offer automatic contribution arrangements and increases to encourage employees further to contribute to this retirement account. A PRIA plan allows catch-up contributions for any individuals age 50 and older.3
Like other retirement accounts, a PRIA has certain contribution and distribution limits. Depending on your income and the different types of tax-advantaged retirement accounts available to you, a PRIA may or may not be appropriate if the legislation passes. It is a good idea to talk to a tax professional before choosing any retirement account.
Investing involves risks including possible loss of principal.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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