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Possible retirement account changes on tap

Originally published in Tahoe Daily Tribune’s website, http://www.tahoedailytribune.com/news/opinion/15083209-113/tahoe-truckee-market-beat-possible-retirement-account-changes-on-tap

Estimating future events is part of the financial planning process. Planners estimate things like life expectancy, inflation, stock market returns and interest rates.

We don’t know exactly where any of these factors will be in the future.

Another uncertainty are the rules that we follow as we plan. Just because the rules are written one way today doesn’t mean that they can’t change. The laws can change at any time.

As the debate over the proposed 2016 budget gets under way, we’ll keep our eye on several proposals that could affect retirement savers.

One proposal in President Obama’s 2016 budget is to require RMDs in Roth IRA accounts.

Right now, Roths are not subject to the minimum distribution rules, which makes them excellent wealth transfer vehicles.

The new rule would make distributions mandatory beginning at age 70 and a half, like Traditional IRAs, SEPs and SIMPLEs.

Many people have established Roths in the last several years with the understanding that there would not be a required minimum distribution in their lifetime; to change the rules now will be a real unpleasant surprise for Roth account owners.

Another proposal is to cap income tax benefits for retirement account contributions and place a cap on total retirement savings.

The cap on income tax deductions is proposed at 28 percent. This will affect savers in the higher income tax brackets, which go all the way up to 39.6 percent.

The limit on total retirement account savings will be based on an annuity calculation.

The rough estimate is that there will be a limit on savings just under $3.5 million — once your account hits that amount, you won’t be able to contribute anymore, but the account can grow, and there is a provision for cost of living adjustments.

There’s also a proposal to completly eliminate RMDs from smaller retirement accounts under $100,000.

This proposal would benefit savers with relatively small account balances, so that they will not have to withdraw funds at retirement age and pay taxes on them.

There are other provisions in the 2016 budget that could affect retirement accounts, and we’ll have to watch the debate as it unfolds.

One thing to remember when planning is that Congress can change the laws anytime.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.


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