Articles tagged with: IRAs

White House Proposes Changes to Retirement Plans

A look at some of the ideas contained in the 2017 federal budget
Provided by Michael Moffitt

Will workplace retirement plans be altered in the near future? The White House will propose some changes to these plans in the 2017 federal budget, with the goal of making such programs more accessible. Here are some of the envisioned changes.

Pooled employer-sponsored retirement programs. This concept could save small businesses money. Current laws permit multi-employer retirement plans, but the companies involved must be similar in nature. The White House wants to lift that restriction.1,2

In theory, allowing businesses across disparate industries to join pooled retirement plans could result in significant savings. Administrative expenses could be reduced, as well as the costs of compliance.

Would governmental and non-profit workplaces also be allowed to pool their retirement plans under the proposal? There is no word about that at this point.

This pooled retirement plan concept would offer employees new degrees of portability for their savings. A worker leaving a job at a participating firm in the pool would be able to retain his or her retirement account after taking a job with another of the participating firms. Along these lines, the White House will also propose new ways to make it easier for workers to monitor and reconcile multiple workplace retirement accounts.2,3

Scant details have emerged about how these pooled plans would be created or governed, or how much implementing them would cost taxpayers. Congress will be asked for $100 million in the new budget draft to test new and more portable forms of retirement savings accounts. Presumably, many more details will surface when the proposed federal budget becomes public in February.2,3

Automatic enrollment in IRAs. In the new federal budget draft, the Obama administration will require businesses with more than 10 employees and no retirement savings program to enroll their workers in IRAs. This idea has been included in past federal budget drafts, but it has yet to survive bipartisan negotiations – and it may not this time. Recently, the myRA retirement account was created through executive action to try and promote this objective.1,3

A lower bar to retirement plan participation for part-time employees. Another proposal within the new budget would allow anyone who has worked for an employer for more than 500 hours a year for the past three years to participate in an employer-sponsored retirement plan.2

A bigger tax break for businesses starting retirement plans. Eligible employers can receive a federal tax credit for inaugurating a retirement plan – a credit for 50% of what the IRS deems the employer’s “ordinary and necessary eligible startup costs,” up to a maximum of $500. That credit (which is part of the general business credit) may be claimed for each of the first three years that the plan is in place, and a business may even elect to begin claiming it in the tax year preceding the tax year that the plan goes into effect. The White House wants the IRS to boost this annual credit from $500 to $1,500.2,4

Also, businesses could receive an annual federal tax credit of up to $500 merely for automatically enrolling workers in their retirement plans. As per the above credit, they could claim this for three straight years.2

What are the odds of these proposals making it into the final 2017 federal budget? The odds may be long. Through the decades, federal budget drafts have often contained “blue sky” visions characteristic of this or that presidency, ideas that are eventually compromised or jettisoned. That may be the case here. If the above concepts do become law, they may change the face of retirement plan participation and administration.

Michael Moffitt may be reached at phone 641-782-5577 or email: mikem@cfgiowa.com
Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – nytimes.com/2016/01/26/us/obama-to-urge-easing-401-k-rules-for-small-businesses.html [1/26/16]
2 – tinyurl.com/je5uj3r [1/26/16]
3 – bloomberg.com/politics/articles/2016-01-26/obama-seeks-to-expand-401-k-use-by-letting-employers-pool-plans [1/26/16]
4 – irs.gov/Retirement-Plans/Retirement-Plans-Startup-Costs-Tax-Credit [8/18/15]

TOD or Living Trust?

A look at two basic methods for shielding assets from probate.

How do you keep assets out of probate? If that estate planning question is on your mind, you should know that there are two basic ways to accomplish that objective.

One, you could create a revocable living trust. You can serve as its trustee, and you can fund it by retitling certain accounts and assets into the name of the trust. A properly written and properly implemented revocable living trust allows you to have complete control over those retitled assets during your lifetime. At your death, the trust becomes irrevocable and the assets within it can pass to your heirs without being probated (but they will be counted in your taxable estate). In most states, assets within a revocable living trust transfer privately, i.e., the trust documents do not have to be publicly filed.1

If that sounds like too much bother, an even simpler way exists. Transfer-on-death (TOD) arrangements may be used to pass certain assets to designated beneficiaries. A beneficiary form states who will directly inherit the asset at your death. Under a TOD arrangement, you keep full control of the asset during your lifetime and pay taxes on any income the asset generates as you own it outright. TOD arrangements require minimal paperwork to establish.2

This is not an either/or decision; you can use both of these estate planning moves in pursuit of the same goal. The question becomes: which assets should transfer via a TOD arrangement versus a trust?

Many investment accounts can be made TOD accounts. Originally, that was not the case – for decades, only bank accounts and certain types of savings bonds could pass to beneficiaries through TOD arrangements. When the Uniform Transfer on Death Security Registration Act became law in the 1980s, the variety of assets that could be transferred through TOD language grew to include certificates of deposit and securities and brokerage accounts.2

Many investment & retirement savings accounts are TOD to begin with. Take IRAs and workplace retirement plans, for example. In the case of those assets, the beneficiary form legally precedes any bequest made in a will.3

The beauty of the TOD arrangement is that the beneficiary form establishes the simplest imaginable path for the asset as it transfers from one owner to another. The risk is that the instruction in the beneficiary form will contradict something you have stated in your will.

One common situation: a parent states in a will that her kids will receive equal percentages of her assets, but due to TOD language, the assets go to the kids not by equal percentage but by account, with the result that the heirs have slightly or even greatly unequal percentages of family wealth. Will they elect to redistribute the assets they have inherited this way, in fairness to one another? Perhaps, and perhaps not.

Placing valuable property items into a living trust makes sense. Real estate, ownership shares, precious metals, pricy collectibles such as fine art, classic cars, antiques, and rare stamps and coins – these are all worthy candidates for inclusion in a living trust. If your net worth happens to run well into the millions, these assets may constitute the bulk of it, and a trust offers a degree of protection for such assets that TOD language cannot. A trust also allows you to name a successor trustee, which TOD language cannot do for you.2

A “pour-over” will usually complements a revocable living trust. As your net worth will presumably keep growing after the trust is implemented, a “pour-over” will may be used to allow your executor to “pour over” assets not already in the trust at your death into the trust. That will mean added privacy for those assets in most states – but the downside is that these “poured-over” assets will be subject to probate.1

Of course, you can add and subtract from the original contents of a revocable living trust as you wish during your lifetime – you can remove assets retitled into it when it was originally created and retitle them again in your name, you can “pour in” new assets, and you can sell or give away specific assets in the trust.4

Is it ever wise to name a trust as the beneficiary of a retirement account? Under three circumstances, it might be worth doing. If you worry about your heirs rapidly spending down your IRA assets, for example, naming a trust as the IRA beneficiary more or less forces them to abide by a stretch IRA strategy. Are there “predators and creditors” who want some of your net worth? That is another reason to consider this move. If you want to leave your retirement account assets to someone who is currently a minor, this idea may be worthwhile as well.4

How complex should your estate planning be? A conversation with a trusted legal or financial professional may help you answer that question, and illuminate whether simple TOD language or a trust is right to keep certain assets away from probate.

Mike Moffitt may be reached at ph 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com 

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – individual.troweprice.com/public/Retail/Planning-&-Research/Estate-Planning/Considering-a-Trust/Revocable-Living-Trust [11/10/15]

2 – fdcpa.com/Tax/0807TaxNewsEstatePlanning.htm [11/10/15]

3 – forbes.com/sites/deborahljacobs/2014/01/03/how-to-leave-your-ira-to-those-you-love/ [1/3/14]

4 – nolo.com/legal-encyclopedia/free-books/avoid-probate-book/chapter7-7.html [11/9/15]