I don’t expect much of that to go through. But, overall, it doesn’t sound as bad as I’d feared.
Want me to stop contributing after $x? Okay, so long as there are no penalties.
Want to close the backdoor on Roth? Okay, I won’t do it again officer.
A little less happy about RMDs on Roth IRAs, but I guess I could live with it.
Not so bad as you’d feared? Either you haven’t read it closely, or the mounds of stipulations wouldn’t apply to your situation. But I think you haven’t looked at it closely enough.
"This proposal would prevent you from making any new contributions to any tax-favored retirement accounts once you exceeded an established cap. The cap would be calculated by determining the lump-sum payment it would take to produce a joint and 100% survivor annuity of $210,000 a year, beginning when you turn 62. Currently, this would cap retirement savings at approximately $3.4 million. The cap, however, would be a soft cap, as your total tax-favored retirement savings could exceed that amount, but only by way of earnings. Adjustments to account for cost-of-living increases would also apply.
Here’s the bigger question though, at least for me: What happens if someone is over their applicable limit, but would otherwise be eligible to receive employer contributions, such as profit-sharing contributions, to their retirement account? It would appear that, under the proposal, these amounts would be forfeited altogether."
Bummer for the person who has stayed home with the kids, and recently returned to work. If their spouse has accumulated high retirement assets–they can no longer contribute. Hope they never get divorced, and if they do, that they don’t have a prenuptial agreement. If the high asset spouse has not made the other one a beneficiary of those assets, one could have little in retirement assets of their own, not being allowed to contribute.
And if you and your spouse have hit that soft target (which could be way less than 3.4 million, based upon whatever the latest annuity rate is)…bonus for your employer! They don’t have to make those pesky little 401K contributions, or profit sharing into your 401K anymore. That 7% that has been contractually negotiated to go into me and my husbands accounts? I guess we can feel good that it just disappears because it’s a matter of “fairness”, as nobody needs any more than $210K in a joint annuity, right?
I always wonder what genius comes up with this stuff in his or her cubicle, thinking that nobody is going to read it or determine the implications of it. The directive sounds like, “Tax the upper middle class, but leave the wealthy donors alone.”
I bumped into this article by chance.
Although it is not about us, the concept of “retirement income security” described in this article is interesting and could be applicable to those of us who belong to the class of “50k to 100k annual income (before retirement)”.
It seems many Americans could be better off than comparable people in many other countries in terms of their retirement income security. Here, the meaning of “being comparable people” is that the sizes of their assets at retirement are similar.
The author seems to have the opinion that as compared to people in other developed countries, Americans have a better way to generate retirement income from their retirement assets.
http://www.manulife.com.sg/pdfs/asset_rich_income_poor_15_may_2013.pdf
@busdriver11, I agree about the limit being based on the married couple total being just plain wrong; the I in IRA stands for individual. As one who voluntarily took himself out of the labor force, albeit with a happy marriage which is not likely to end in divorce, the risks that go with staying at home are not trivial for the homemaker, and one never knows what the future holds.
Conceptually, I like forcing all money out of tax-advantaged accounts five years after the the last spouse has passed. I don’t think these accounts were ever intended to provide multi-generational tax deferral/avoidance. Get that money generating taxes.
To those who complain “but you are changing the rules mid-stream” I say, so what? The rules around taxation and estates and stuff changes all the time. You make the best plans you can, when the rules change you adjust. The next time a certain party controls both houses and the presidency, and the estate exemption limit gets rolled back, you’ll be able to hear the yelling and gnashing of teeth from the moon. But life will go on.
I like requiring RMDs on the Roth, and I’d also like Roth distributions to be counted when calculating taxability of SS benefits. It makes no sense to me that a distribution from a regular IRA can cause your SS to be taxed but a distribution from a Roth doesn’t. (If RMDs for Roths don’t happen I’d like to see the imputed RMD be used to calculate taxability of SS.)
The issue with employer contributions if you are over the limit - one solution would be to allow you to withdraw that amount of money from other tax-advantaged accounts without paying the 10% early withdrawal penalty. Another would be to allow it to be taken as regular income. There are solutions so you don’t lose the money.
I didn’t really get why limiting the tax benefit of IRA contributions to 28% would be such a big deal compliance-wise, or why that would create a basis. In any year, if your contributions would have been in a bracket higher than 28%, you just have a form which calculates the extra taxes and adds it to your bill. I.e., if you contributed $10K which would have been in the 33% bracket, your tax bill for the year goes up by (10000 * 0.05), or $500. It isn’t any more difficult than the calculation to limit mortgage interest deduction benefit to 28%, which I have seen proposed. It might make the Roth a better deal for high bracket people.
Changing the rules all of the time reduces any certainty that people have as far as planning their retirement. Just because it has been done in the past doesn’t make it right. Changing a rule for future transactions is acceptable, changing things that people have already taken action on strongly reduces any trust in government.
Making tax policy even more complicated is not a positive change. Lumping spousal retirement funds together is ridiculous. As Bob said, you never know what the future holds. One person’s retirement funds could be depleted to pay for a nursing home, leaving the other with little, because they were not allowed to contribute. Solutions that depend upon the benevolence of your company to pay you additional income instead of into your 401K may be completely impractical. It’s not in the contract, sorry, no can do, better give up something the next contract in order to get that back.
Too much interference, too many more complicated tax policies, too many changes. I don’t want to have to vote my pocketbook. I don’t know why politicians are entitled to write our tax policy anyways, depending upon which constituency they are trying to cater to.
There is nothing preventing you from saving as much as you want in non-tax-advantaged accounts. Why do you consider IRAs and the like to be the only way to save for retirement?
“There is nothing preventing you from saving as much as you want in non-tax-advantaged accounts. Why do you consider IRAs and the like to be the only way to save for retirement?”
I don’t. But I don’t think that one spouse’s contribution to a 401K from their company or their personal contribution should be limited because of what the other spouse makes. Should that person be forced to save in a taxable account, being taxed at the high earners tax rate, while being unable to save in a retirement account? Why do you think that is good tax policy?
I also don’t like changing rules for actions that have been taken in the past. Fine, change rules for the future, but not on things that have already been done. People should be able to count on the actions they have already taken for their retirement, and not be at the whims of whomever is wielding the power for the minute.
If you buy into the fact that there should be a limit to how much you can pile up in tax-advantaged accounts, then yes, they should have to put it in a taxable account and pay the taxes. Why should I help pay for a retirement for you that puts you in the 1% or very close?
There’s already rules on the books for how to handle excessive contributions to IRAs. A small extension could handle employee matching, as I already suggested - let the employer money get contributed, but then you have to withdraw the excess from some non-taxable account and treat it as taxable income. Remove the 10% early withdrawal penalty in this case.
We treat our retirement assets as joint money, and since money is fungible it doesn’t really matter whose account it goes in. I could be wrong since I have no personal experience, but I thought in the case of divorce, retirement assets are divided, you don’t only get what is in your own account. I believe it is called a qualified domestic relations order, or some-such.
Over a million. I think that is good. D still thinks it is not enough.
“Over a million. I think that is good. D still thinks it is not enough”
Is this an answer to the original question, 4569 posts ago, or another answer? If it’s the original question, I agree with your D.
“We treat our retirement assets as joint money, and since money is fungible it doesn’t really matter whose account it goes in. I could be wrong since I have no personal experience, but I thought in the case of divorce, retirement assets are divided, you don’t only get what is in your own account. I believe it is called a qualified domestic relations order, or some-such”
We do the same thing, same philosophy. It’s pretty balanced anyways, as we make the same income, though since my husband started working at the company after I did, his 401K is lower. I bump him on some of his trips so he can get paid for them and increase his retirement contribution. But that’s not what everyone does. I know people with separate accounts, that split expenses, and pay for different things. Seems odd to me, but it’s what they do. I also know women who have been left with almost nothing after a divorce. I think it depends upon the state, if there is a prenuptial agreement, and who has the best lawyer. It can be challenging when one spouse made far less than the other, it doesn’t always go so well for them.
I have always given my husband the choice. If he ever wants a divorce, I will just kill him. It’s quite simple, it’s totally up to him. I think he’s a little uncertain of whether I’m kidding or not… 
I am a newbie to worrying about investing, outside of retirement plans offered at work). We went to see a financial analyst/planner the other day, and we really liked him. He took lots of info. From us and is going to do a spreadsheet of how we are looking for retirement, based on different dates, money we want in various buckets (x amount for travel each year, x amount off the top for assumed kid related spending, etc.). He was not pushy at all (others than maybe to tell us we really should do IRAs and back door them to Roths). He charged us 175 for his service, and he will now update our info. as often as we’d like for free. We definitely felt like we got our money’s worth, and my husband, who was very skeptical going in, was quite impressed with the guy. He came highly recommended, and speaks at retirement seminars where I work on a regular basis. He lives in “our community” (meaning within 10 or so miles), and has been doing this for over 30 years. So here’s my question: am I likely “losing any money” by investing with him, instead of going directly to Vanguard, fidelity, etc? I know I will not do a good job watching any investments I make, so it is worth something to me to have someone do that. He also gets opportunities to buy investments (like munis that come available and sell quickly) that I wouldn’t see trying to do it myself. He doesn’t charge us anything for investments, because he’s paid by the companies. He claims that generally speaking it won’t cost us any more to invest with him. He also seems to be pretty conservative, which I like. I plan to join bogleheads or whatever it’s called soon, but for now you are my “known group” to help. There I have no idea who the “winners and losers” are as far as advice. Thanks in advance for any advice, etc.
YMMV, but I personally would not give money to “a guy” to invest but would keep it with Vanguard, Fidelity, Schwab, etc. This fellow may be as honest as the day is long, but all I can think of is Bernie Madoff. He came highly recommended.
Let the guy tell you what to do, and perhaps pay him for that advice, but keep your actual funds in an account at one of the big companies.
I agree with VeryHappy. It is better on the safe side. When you said both your husband and you like/trust him, it is likely you have already let your guard down.
Re: “generally speaking it won’t cost us any more to invest with him.”
The word “generally speaking” is tricky. This whole statement seems to be too good to be true to me. Even with the discount brokers like Vanguard, Fidelity, Schwab, whose business model is more on the discount (volume seller) side, it will still cost you quite a bit for many of their services (unless you stick to their index fund which requires low efforts.) How can you reasonably expect that a personalized face-to-face service from a financial expert will not cost you dearly “generally speaking”?! Any service costs something. Believing otherwise is likely to fool yourself…
Does he not charge you at all for taking care of your investment? How does he get paid? The low cost schwab charges anywhere between 1-0.25% of the assest they manage. Regular firms higher starting at 2% or so. If you don’t believe in free lunch, he must be making money somewhere. It’s likely at your expense, I’d think.
" He doesn’t charge us anything for investments, because he’s paid by the companies. He claims that generally speaking it won’t cost us any more to invest with him."
Paid by the companies? That sounds suspiciously like commission. Not charging you anything on an annual basis, nothing that you actually pay out to him, but perhaps when he sells you something for $100, he takes a nice $6 cut, making your investment start out being worth $94? Giving motivation to churn your account for commissions, and costing you far more than if you’d paid someone an annual percentage? But you aren’t actually writing him a check, so that’s where the not charging you for investments can be claimed.
Companies don’t pay someone to sell their stocks, mutual funds, or municipal bonds, do they? That sounds really suspicious, like he is avoiding the word commission. And what does “generally speaking” it won’t cost you any more to invest with him? Is that because he thinks he gets an extra good return that will cover the commission? Have you googled his name, his company, see what comes up?
This just sounds wrong to me. Not Bernie Madoff wrong, but like it could cost you a lot in the long run.
Run, don’t walk, from this guy. Bogleheads.org is full of sob stories from people who are now trying to extricate themselves, with the least amount of pain, from these deals. 5.75% load up front. Exit loads. High annual fees. Etc.
The really tricky ones will say that they don’t sell this thing or another, making it look like an arm’s length deal, but they happen to know a guy, a wonderful guy who’s very kind to his pet canary, probably goes to the same church as you do, etc.
Count your fingers after you shake hands.
He will likely get a commission for investing your money in investments that charge a % or load for buying the funds. He may also get an annual % for investing in the funds.
Depending on how much money you are investing, you can talk with someone at Schwab or Fidelity or Vanguatd about setting up a no load, low expense ratio index fund portfolio that takes very little time and investment to manage.
I would NOT trust someone to invest my hard earned $$$ unless I wanted to give the a whole lot of my money.
Bogleheads.org is a good place to learn about how anyone can make their own investments and do quite well with very little time and effort, just patience and consistency.
I agree with others 100% who recommend talking to an advisor all you want (you may pay an hourly rate for this depending on who you use). Reflect with him/her. Get ideas and guidance. But manage your investments YOURSELF with Vanguard or Fidelity. (Schwab is your call - I found them very hard to work with after my dad died and I was unwinding his estate.)
Do not pay a management fee based on assets under management and do not, not, not buy anything that is too complicate for you to understand or something so special “only a few get this product”. Index funds, muni bond, TIPS (if you are so inclined) funds and the like, plus your house and rental property (if so inclined) or maybe a real estate mutual fund (not a limited partnership!) should be enough for anyone with less than 5 or 10 million in assets (in my opinion). Since hardly anyone has more than this, it is safe to say these are adequate choices for almost everyone.
Don’t pay someone to manage your money (unless, as you get older, it is your financially responsible child and you pay them with love and affection).