2015 will be the year of confusion for many when it comes to
determining where they should save for their retirement. New plans, products
and proposals mean that we are likely to see massive changes to our
tax-advantaged retirement system in the future, whether it be from state
governments or federal. The president’s State of the Union address and budget
include several proposals for change. Over the next year, new accounts,
proposed tax changes will likely cause confusion over where savers should put
their retirement dollars.
While many of the new proposals worth applauding, the
majority of what is coming and proposed for retirement investors will add to
the current confusion of how to finance a retirement. Below are a few of the
good, the bad, and the disappointing new plans, proposals, and changes over the
- Auto-IRAs. IRAs and Roth IRAs provide
individuals with maximum flexibility and choice over their retirement savings.
While many pundits are pushing for less choice in plans, there are often
target-date funds that are appropriate (if not ideal) for those who do not want
to choose their own investment mix.
- After-tax rollovers to Roth IRAs. For
years, what to do with after-tax contributions to employer plans was a gray
area of planning. In 2014 the IRS blessed the direct rollover of after-tax contributions.
- State-sponsored 401(k) plans. Many states
are looking at options to sponsor 401(k) plans, and unfortunately the plans so
far seem to place the 401(k) product ahead of the need for financial advice.
These plans will require millions of dollars for attorneys, investment
committees, and staff, rather than outsourcing these functions to established
- Elimination of tax benefits. Proposals to
eliminate stretch IRA benefits, backdoor Roth IRA conversions, Net Unrealized
Appreciation (NUA) of company stock, and the exemption of required minimum
distributions on Roth IRAs are not eliminating loopholes, but add new taxes on
- No current proposal simplifies our current
system, makes retirement contribution amounts equal for all Americans, or fixes
the nuances with employer-based retirement accounts that disallow full
contributions to part-time, seasonal, or laid-off workers.
- While there are many more solutions being
proposed to fix the retirement savings crisis, the financial planning
process has yet to even be proposed. The retirement savings problem isn’t one
of products, it is a problem of a lack of personalized advice and planning. So
far every solution I have seen makes no provision for working with an advisor
(that is, every plan except for some traditional 401(k) and 403(b) plans).
While automatic enrollment with opt-out provisions like the
auto-IRA can help savings rates, many who do not have a financial plan cash
their accounts out as soon as they are able, often for no good financial
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