The White House

Yesterday, President Obama unveiled his fiscal-year 2015 budget and below are the potential impacts to retirement plans.

Last year, six out of the seven provisions detailed below, or similar versions of them, were included in President Obama’s fiscal-year 2014 budget. Repeat: none of them were enacted from last year’s budget.

These are proposals only. This year’s proposals:

  1. “Harmonize” the RMD Rules for Roth IRAs with other retirement accounts
    President Obama’s fiscal year 2015 budget calls for a provision that would require Roth IRAs to follow the same required minimum distribution (RMD) rules as other retirement accounts. If this were to come to pass, it is a MAJOR game-changer when it comes to retirement planning. If this proposal becomes law, conversions may not make sense.
  2. Create a 28% maximum benefit for retirement account contributions
    The maximum tax benefit (deduction) for making contributions to defined contribution retirement plans, such as IRAs and 401(k)s, would be limited to 28%.
  3. Mandatory 5-Year rule for non-spouse beneficiaries
    Most IRA (and other retirement plan) non-spouse beneficiaries would be required to empty inherited retirement accounts by the end of the fifth year after the year of the IRA owner’s death (known as the 5-year-rule).
  4. Establish a “Cap” on retirement savings prohibiting additional contributions
    New contributions to tax-favored retirement accounts, such as IRAs and 401(k)s, would be prohibited once you’ve exceeded an established “cap.” This cap would be determined by calculating the lump-sum payment that would be required to produce a joint and 100% survivor annuity of $210,000 starting when your turn 62. The cap would be increased for inflation.
  5. Eliminate RMDs if your cumulative retirement account savings is $100,000 or less
    If you have $100,000 or less – across all of your retirement plans combined – you would be exempt from required minimum distributions.
  6. Allow non-spouse beneficiaries to make 60-day rollovers of inherited assets
    Non-spouse beneficiaries would be allowed to move inherited retirement savings from one inherited retirement account to another inherited retirement account via a 60-day rollover (in a manner similar to which they can currently move their own retirement savings).
  7. Mandatory auto-enrollment IRAs for certain small businesses
    Employers in business for at least two years that have more than 10 employees and don’t offer another retirement plan already would be required to offer auto-enrollment IRAs to their employees. Contributions to employees’ IRAs would be made on a payroll-deduction basis.

The President definitely has retirement plans in his cross-hairs. On one hand he is saying American’s are not saving enough and on the other hand he is saying don’t save too much. With this much emphasis on retirement plans, it might be a smoke signal that the government is getting anxious to get it’s hand on their portion of the tax revenue from these savings vehicles. What do you think?

Note: Thanks to Ed Slott for contributing to this post.

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