A recent article in Forbes discusses three proposals in President Obama’s budget for fiscal year 2015 that could disrupt retirement plans nationwide. It’s a fairly long article, which I invite you to read in full by clicking here, but here are the “highlights.”
Mandatory minimum distributions on Roth IRAs.
Unlike traditional IRAs and other retirement planning vehicles, Roth IRAs are not subject to rules requiring minimum distributions at age 70 and a half. This change will reduce the amount of assets benefitting from tax-free growth, with the owner of the Roth IRA ultimately having less money available during the course of his or her retirement.
A cap on wealth inside an IRA.
This change would place a cap on the amount of contributions or accruals allowed in an IRA once the owner has achieved what the government terms a “secure retirement.” The cap is rather substantial, $3.2 million, but other retirement plans such as a 401(k) and 403(b) would count against the IRA cap. High net worth individuals should be aware of how this potential change will impact the way they use IRAs in their retirement plans.
A reduction in Social Security benefits.
The government has been exploring ways to protect the future viability of the Social Security system for years. According to the Forbes article, the current focus is on finding ways to eliminate aggressive Social Security claiming strategies, which allow wealthy beneficiaries to maximize delayed retirement credits by manipulating the timing of collecting Social Security benefits. The loss or reduction of certain claiming strategies could impact not only wealthy beneficiaries, but also middle and lower income families who were planning to use similar strategies in planning for retirement.
While it is impossible to predict which, if any, of these changes will be adopted, the prospect of changes to the law is one reason to have your plan reviewed over time.