The House Ways and Means Committee cleared legislation aimed at helping workers build their retirement nest egg, according to this article on CNBC. Under the bill, long-term part-time employees would be allowed to participate in their employer-sponsored retirement plans and small companies would qualify for a $500 tax credit if they offer automatic enrolment in their 401(k) plans. However, the proposal would discourage higher-income IRA investors from using the "stretch IRA" strategy, as the bill includes provisions that would require non-spouse beneficiaries to take withdrawals within 10 after the original owner’s death.
Retirees are advised to understand the major changes under the new tax law to take advantage of these rewrites, according to this article on The Wall Street Journal. The new law nearly doubled the standard deduction, raised the gift-tax exception to $11.4 million, and allows retirees to donate required minimum distributions directly from their IRA to charity and get the corresponding tax break. The law also expanded the list of qualified education expenses for 529 plans but limited the medical-expense deduction and scrapped Roth re-characterizations.
Aside from 401(k), IRA and other tax-deferred savings vehicles, holding assets in a taxable account can be a great option for retirement savers, writes Morningstar's Christine Benz. "A key reason to do this is if you’re a supersaver who has maxed out the available tax-sheltered vehicles and still have assets to invest," explains the expert. "You’ll also want to employ a taxable account if you expect to tap the account prior to retirement... You may pay transaction costs and capital gains taxes as you trade, but there are no penalties for early withdrawals."
Data from Natixis show that 30% of millennials have borrowed from their 401(k) plans, with 26% taking early withdrawals from their workplace retirement plans, according to this article on personal finance website Motley Fool. Experts are generally against tapping retirement accounts ahead of time, as this move could have serious impact on their financial security in their golden years. Premature withdrawals from retirement accounts will also trigger a 10% penalty plus taxes. Clients should consider building an emergency fund to avoid tapping their retirement assets.
