New changes in pension law should have advisors considering the immediate impact on boomer clients when they conduct their regular client reviews, according to interviews conducted by National Underwriter.
The Pension Protection Act of 2006 was signed into law on Aug. 17 by President Bush. The law’s provisions will have numerous long-term effects on retirement savings. But some of the changes either take effect at the start of 2007 or require planning to start now in preparation for their effective dates later on.
One issue that should be raised is the extension of the laws from 2001 that would continue to allow tax-free withdrawals from 529 plans, according to Jim Holtzman, a financial advisor who holds the title of shareholder with Legend Financial Advisors, Pittsburgh. Holtzman says he is asked that question by many clients, and it is one that should be raised when considering the implications of the act.
Another point that should be made is a client’s ability to continue making pre-tax contributions to retirement plans, an amount that will increase to $15,500 in the 2007 tax year, he adds.
The issue of automatic enrollment in retirement plans should be raised, he says. While Holtzman notes the benefits of saving in a tax-qualified plan and says employees should consider contributing to at least the level matched by the employer, he does feel there are cases in which automatic enrollment could have a cash flow impact.
Additionally, he says, because of the automatic enrollment provision, an advisor should look at whether the 401(k) that an employer offers to its employees has good investment options. If it does not, then the advisor could advise that a boomer client consider a qualified IRA instead, Holtzman adds.
Another issue that advisors should consider now is whether new annuity products with long term care options should be considered, he says. However, he notes that a number of the brokers and agents he spoke with did not know about the provisions that would create these new products.
So, he adds, one of the immediate needs going forward will be education on how the new law will impact boomers as well as their employers.