Sens. Scott, Warren, Lee, Wyden Introduce Bipartisan Bill to Help Graduate Students Build Retirement Savings
Washington - U.S. Senators Tim Scott (R-S.C.), Elizabeth Warren (D-Mass.), Mike Lee (R-Utah), and Ron Wyden (D-Ore.), today introduced the Graduate Student Savings Act of 2017, which would allow funds from a graduate student's stipend or fellowship to be deposited into an Individual Retirement Account (IRA). While fellowship or stipend funding currently is taxed as income by federal and state governments, it does not qualify as "compensation" and so cannot be saved in an IRA.
"Encouraging both educational progress and retirement savings is a win-win," said Senator Scott. "I'm glad to join a bipartisan group of Senators in this effort to make a commonsense adjustment to our tax code."
"Saving for retirement is tough enough, but it's even more difficult for graduate students and postdoctoral fellows who can't designate a portion of their earnings to tax-deferred accounts," said Senator Warren. "This bipartisan bill opens a door for students who want to do the right thing and start saving early for their futures."
"The complexity of our tax code and the incentives to save for retirement have unfortunately left many post-graduate researchers in a position where they are unable to take advantage of tax-deferred retirement savings programs like IRAs," said Senator Lee. "This bill makes a very simple change to the code to fix this inequity."
"Our students should not be forced to choose between pursuing higher education and saving for retirement," Senator Wyden said. "By restricting the use of graduate and fellowship stipends for retirement accounts, we are forcing our students to make this difficult choice. This bipartisan bill takes a necessary step towards helping students achieve their academic goals while giving them the opportunity to invest in their future."
A majority of doctoral students report receiving some of their financial support during graduate school from fellowships or grants, and about a third of all students report that fellowships or grants were their primary source of funding. The median doctoral student takes about seven years to finish a degree - meaning that, for the better part of a decade, a student can be prohibited from saving portions of her income in a tax-advantaged account. This bill would remove this unnecessary hurdle so that students and postdoctoral fellows can start saving today.
The Graduate Student Savings Act of 2017 is supported by Fidelity Investments; the International Union, United Automobile, Aerospace, & Agricultural Implement Workers of America (UAW), Service Employees International Union (SEIU); National Association of Graduate-Professional Students (NAGPS); TIAA; Betterment; and American Federation of Teachers (AFT).
"Many graduate students receive stipend or fellowship support that helps them pay for food, rent, transportation, or other living expenses while in school. Although this compensation is taxed as regular income, they do not have the option to save it in an IRA," said Kevin Hevert, Fidelity Investments Senior Vice President for Retirement Policy. "All Americans should have access to tools that can help them save for retirement. People are living longer yet often have fewer sources of lifetime income, so the earlier they can place some money in an IRA, the bigger the impact down the road."
"Saving early helps to establish a lasting retirement savings habit, leading to greater lifelong financial security," said Roger W. Ferguson, Jr., president and CEO of TIAA, a global, diversified financial services firm and leading provider for those in the academic, research, medical and cultural fields. "We applaud today's introduction of the Graduate Student Savings Act, and urge lawmakers to support graduate students as they seek to invest in their futures."
"Saving for retirement is not an easy task, and the current restrictions for graduate students make it even harder," said Jon Stein, Founder and CEO of Betterment, the largest independent robo-advisor. "The Graduate Student Savings Act of 2017 is changing this, making it easier for more people to save as early as possible. We're proud to support it and view it as another positive step toward improving retirement outcomes."
The legislation was originally introduced in 2016 by Senators Warren and Lee, along with a companion bill introduced in the House by Congressmen Joe Kennedy (D-Mass.) and Luke Messer (R-Ind.).
A fact sheet about the legislation is available here, and the full text of the bill is available here.
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