As usual, this new year will see a few updates to some of your clients’ most important retirement programs. Social Security’s cost of living adjustment will boost benefits by 1.7 percent, the 401(k) contribution limit will increase from $17,500 to $18,000, and a few of the largest Medicare Part D drug plans may raise their premiums.
Aside from these predictable changes, though, there are a few major considerations pre-retirees will need to make as they plan, save and invest in 2015. From recent legislation regarding retirement account rollovers to new options for workers without employer-sponsored plans, this year brings host of changes that could alter your clients’ ideal strategies. There are also a few options that have long been available, and that are more important now than ever as retiring Baby Boomers plan to fund decades-long retirements.
IRA Rollover Reductions
Up until now, planners could use multiple IRAs as short-term loan vehicles. The rule may have allowed for only one rollover per IRA per year, but someone with several IRAs could simply withdraw from each one and face no penalties as long as the funds were deposited back into the account within 60 days.
Due to a recent tax court decision, the IRS now only allows one 60-day rollover per individual per year. Direct transfers from one account to another are not affected.
Aside from making it more difficult to free up large sums of money, the change also complicates IRA CD distributions. “A lot of these CDs were structured in the past to cash out and roll over into the same IRA within a CD,” said Jamie Hopkins, American College Professor of Taxation. “Techniques for doing that are going to have to change, and if an IRA is going to mature within the year, make sure you’re going to meet the new rollover rules.”
A new type of retirement account called the “my Retirement Account” — myRA — is now available to workers whose employers don’t sponsor retirement plans. The myRA is essentially a Roth IRA that can be opened with no start-up costs and no maintenance fees, and there are no minimum contribution requirements. Unlike other plans, however, it only allows for investments in government savings bonds, offering less risk and less chance of return. “People who don’t have other options might want to start putting money into a myRA through payroll deduction,” said Hopkins.