Face the New Reality of Retirement

You have always had an idea about the retirement plan – you have your company’s pension, personal saving as well as social security. Reality as always, is a pain in the neck and it widely disagrees to the age-old pension plan. Private companies these days, can’t get rid of pension funds fast enough, personal savings are always scraping the bottom and social security – well, let us not talk about it!

Facts taken into consideration, people are still retiring and they need to safeguard their old-age with security by protecting their savings, create income for their retirement and establish tax strategies which will allow them retain their wealth. However, that is not going to be easy.

In the US, retirement accounts hold more than $11.6 trillion of untaxed assets[1].  Government is always looking out for ways to ensure incoming money through income tax, limiting contribution, excise taxes etc. that will help maintain a constant cash flow. Obama Retirement Plan Changes are a part of President Obama’s Fiscal Year 2015 Budget which has riled up the retirement industry.[2]

Let us look into the major 7 Obama Retirement Plan Changes that the budget is talking about.

1. Establishing Cumulative Cap on Retirement Account Balances: Proposed in the 2014 fiscal budget, lifetime retirement benefits will be provided only on the amount required to provide maximum annuity under deficit balance plans. Limits would be calculated, as per Treasury Department’s Greenbook, at the end of year and will be applied to contributions and accruals the following year. Additional accruals and contributions over and above this won’t be allowed.

1. Raising PBGC Premiums: PGBC board will be authorized to set premiums for single and multiemployer plans and consider risks while setting those premiums.

1. CAP Value of Tax Exclusion for Retirement Benefits: The value of itemized tax deductions as well as employee contributions to retirement plans and IRA’s would be capped at 28% for taxpayers in higher tax brackets. An adjustment in basis would happen, provided taxpayer’s deduction or exclusion for retirement conclusions were limited.

1. Automatic Individual Retirement Accounts & New Savings Account: The budget will establish automatic payroll deduction IRA’s (long-standing proposals from lawmakers and administrators).

1. Relax Rules for Minimum Required Distribution from Smaller Accounts: The budget is not going to include retirement balances of $100,000 or less on measurement date and will phase them in for the ones whose aggregate balance is between $100,000 and $110,000.

1. Changed Rules for Inherited Individual Retirement Accounts: Beneficiaries other than spouses would be needed to take distribution from inherited IRAs over a period of five years or less, unless the beneficiary was disabled, chronically ill or less than 10 years younger than the deceased.

1. Electronic Filing of Form 5500: The budget also allows IRS to enter tax-specific employee benefit plan information in electronically filled annual reports.

If you are a retiree, you should be mindful of the key retirement account provisions to be included in the president’s budget this year because they are the best indicators of which direction administration wants to head. You may like to attend a webinar by leading retirement planning expert Rick Rodgers who will review changes being proposed and access the likelihood of proposals being passed in the Obama Retirement Plan Changes.