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The challenges of retirement planning have never been more formidable, as baby boomers streaming to age 65 at a rate of 10,000 per day are tasked with planning an uncertain future. Ever-changing market conditions, perpetual legislative changes, an influx of new financial products saturating the retirement planning market and other variables have put retirees confused and financial planners on constant alert to keep up with it all.There were five legislative changes made in 2014 that everyone planning for retirement should know about: the introduction of the myRA retirement savings program; a new rule establishing a reduction in the number of IRA to IRA rollovers; the introduction of qualified longevity annuities to 401(k)s; increased access to annuities in target date funds, and decreased creditor protection for inherited IRAs.
Individuals heading for retirement, whether now or in the near future, should learn what these changes mean to their future. Independent financial planner Don Ross of Columbus, Ohio offers a summary of each new rule below, as well as a glimpse at how these changes may affect individuals financially.
Beginning with the Treasury Department’s new myRA program, individuals who earn less than $129,000 annually and married couples earning less than $190,000 annually who file jointly and have no employer-sponsored retirement plan now have the ability to save for retirement through a low cost and tax advantaged program.
With a maximum contribution capped at $5,500 per year ($6,500 for people age 50 and over), the myRA program is free for employers to make available to employees, although the employer will not administer accounts or contribute to them financially. The program provides an easy way to help individuals establish a starter retirement fund and build better saving habits.
With the new rule change involving IRAs, individuals are now allowed to rollover only one distribution in a 12-month period from an IRA to another IRA, or the same IRA. As before, the rollover must take place within 60 days to avoid tax issues. Previously, the IRS put no limitation on the number of IRA distributions an individual could rollover without a tax penalty. The 12-month, one rollover cap applies to all IRAs, regardless of how many an individual owns.
With the introduction of qualified longevity annuities to 401(k)s and IRA markets, people planning for retirement now have another tool to create a reliable retirement income plan. According to Ross, annuities have always played an important role in ERISA qualified retirement plans, since the primary form of payment offered to married participants in a defined benefit plan is a qualified and joint survivor annuity. However, qualified longevity annuities weren’t benefitting a large number of retirees, since the annuity would not begin to pay participants until they reached 70.5 years old—the required minimum to meet distribution rules.
“Longevity annuities, which can be used to help pay for long-term care expenses and protect the assets and income stream of retirees, previously had no role in qualified plans despite their obvious advantages to retirement planning,” he says.
The Treasury Department established the new qualified longevity annuity rules in 2014 to allow their use in 401(k)s and IRA markets. Individuals can now hold a QLAC worth up to $125,000 or 25 percent of their account balance (whichever is lower) inside of an IRA or 401(k). Under the new rule, qualified longevity annuities are excluded from required minimum distribution calculations.
Decreased creditor protection for inherited IRAs also came about in 2014, when the U.S. Supreme Court made the decision to exempt inherited IRAs from “retirement funds” status, stripping them of the creditor protections previously afforded under federal bankruptcy laws. Traditionally, up to $1.25 million could be protected from creditors if held within a Roth or traditional IRA. This ruling has the potential to change the way some individuals choose to bequest assets due to the lack of creditor protections. However, other certain types of trusts or instruments allowing for a “spendthrift” provision may provide better creditor protection when that is a primary concern.
Finally, in an effort to provide qualified defined contribution plan participants with additional access to a guaranteed income source, the Treasury Department and the IRS issued new guidelines expanding access to annuities within 401(k) plans by allowing 401(k)s to offer target date funds that include deferred income annuities as the default investment option. The target date fund can include annuities that begin payments as early as retirement or at a later time, providing another way to generate some guaranteed retirement income and protect the individual’s income stream later in retirement.
Contact Info:
Name: Donald Ross
Email: Send Email
Organization: Ross Wealth Advisors
Phone: (614) 545-0277
Website: http://rosswealthadvisors.com
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 82196
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