Automatic IRA Act of 2025

This bill amends the Internal Revenue Code to create rules for automatic contribution retirement plans and arrangements, including a new type of employer-facilitated automatic IRA. It also provides a small tax credit for certain employers that offer such arrangements and preempts certain state laws that would restrict them.

Sec. 2, Automatic contribution plan or arrangement: This section defines an "automatic contribution plan or arrangement" as certain types of retirement plans or automatic IRA arrangements that meet specific notice, eligibility, contribution, investment, fee, and lifetime income requirements. It sets default contribution rates starting at 6% and increasing to 10%, allows employees to opt out, and requires default investments in target-date or lifecycle funds. For automatic IRA arrangements, it details payroll deduction rules, default treatment as a Roth IRA, and model notice requirements. It also imposes a penalty for employers who fail to timely remit contributions to an automatic IRA and waives the early withdrawal penalty for distributions made within 90 days of an individual's first election to participate.

Sec. 3, Credit for certain small employer automatic IRA arrangements: This section creates a new tax credit of $500 per year for the first three years for eligible small employers that facilitate an automatic IRA arrangement and did not previously maintain an eligible employer plan. The credit is part of the general business credit.

Sec. 4, Treatment of automatic IRA arrangements under state law: This section preempts state laws that would directly or indirectly prohibit or restrict an automatic IRA arrangement. It also provides that employers maintaining such an arrangement are not subject to state or local requirements to facilitate a state payroll deduction savings program, with an exception for arrangements under a qualified state law.