Politics makes strange bedfellows. Two senators on opposite sides of the political and ideological spectrum have teamed up to back new retirement savings-related legislation.
Last week, Senators Elizabeth Warren (D-Mass.) and Mike Lee (R-Utah) introduced the Graduate Student Savings Act of 2016, 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.
“We should be encouraging young adults to start saving early for retirement, but that’s a lot tougher than it should be for graduate students who can’t tuck away some of their income into tax-deferred accounts,” Warren said in a statement. “This bipartisan bill will open an important opportunity for graduate students and postdoctoral fellows who want to start building their retirement savings.”
“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. This bill makes a very simple change to the code to fix this inequity,” added Lee.
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 major 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 2016 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; and Betterment.
“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 John Sweeney, Fidelity Investments Executive Vice President, Retirement and Investing Strategies. “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.”
“Graduate and professional students work long hours, juggling their coursework and studies, oftentimes with teaching or research,” said Kristofferson Culmer, president and CEO of the National Association of Graduate-Professional Students (NAGPS). “The stipends they receive for teaching undergraduate classes or working alongside research partners is analogous to a salary, and should not be restricted to prevent these individuals – many of whom must obtain graduate or professional degrees to fill crucial and much-need occupation gaps in our communities – from saving for retirement and investing in their future.”
“TIAA believes that saving as early as one can for retirement leads to greater financial security and applauds today’s introduction of the Graduate Student Savings Act,” said Roger W. Ferguson, Jr., president and CEO of TIAA. “As the nation’s leading provider of financial services for those in the academic, research, medical, and cultural fields, our research shows that the earlier individuals establish a retirement savings habit, the greater their lifelong financial security.”
“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 2016 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.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
