10 Retirement and Tax Rules Advisors Love to Hate: Advisors' Advice

2. The one retirement rule I would change would be geared toward helping people save more for health care in retirement. I would change some of the rules governing the HSA account as follows: Make it open to everybody regardless of the insurance plan they have. Currently, one can open an HSA only if they have a high-deductible insurance plan.

I would raise the maximum for this account from the current $7,200 per family to something similar to the current 401(k) plan limits. Similar to a 529 plan, allow tax-free gifting to this account from other members of society. To encourage those with very low incomes to fund the accounts, I would have the government assist by providing some sort of a small subsidy for those making less than $50,000.

— Jane Mepham, founder and principal advisor, Elgon Financial Advisors, Austin, Texas

3. The one rule that I would like to change relates to required minimum distributions (RMDs) because it forces many retirees to access their tax-deferred accounts such as traditional IRAs and 401(k)s earlier than needed. By eliminating the RMD requirement, retirees will have the ability to defer taking taxable income until it is needed, thus extending the tax advantage of those accounts.

— Henry W. Fox, CFP, investment advisor representative, Blue Bell Private Wealth Management, Blue Bell, Pennsylvania

4. I immediately thought about the limitations on deductibility for spousal contributions to a traditional IRA. The amount you can deduct is limited if either you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. A full deduction is available if your modified AGI is $198,000 or less for 2021. A partial deduction is available for incomes between $198,000 and $208,000 for 2021. No deduction is available for incomes greater than $208,000 for 2021.

So if one spouse is covered by a retirement plan through their employer, the ability for a non-working spouse to make deductible contributions and save for retirement is substantially limited.

— Danny G. Michael, CFP, RLP, MSBA, principal at Satori Wealth Management, San Diego and Los Angeles

5. If I had the opportunity to change one rule, I would remove the MAGI limitations on retirement contributions. There are a lot of folks who are trying to do the right thing in terms of saving enough money for a comfortable retirement, yet they make “too much” money because of the MAGI limits. Yes, there are ways to get around them (backdoor Roth, Mega Roth, etc.), but it shouldn’t have to come to that. You can’t preach that everyone needs to save for retirement, yet limit the amount they can save with income limits.

— Dan Herron, CPA, PFS, CFP, principal, Elemental Wealth Advisors, San Luis Obispo, California

6. I would personally be in favor of eliminating the income tax. For those who think this is "absurd," it's important to note that there was no income tax in the United States until 1913, so most of this country's history didn't include an income tax. If we can't get rid of the income tax, I believe it would make more sense to have a flat tax as opposed to a complicated, progressive tax system.

Personally, I don't think it makes a lot of sense to disproportionately discourage the most productive people in society (as defined by their income) from producing more goods and services for society. If we want to prevent the wealthy from "overconsuming," it would make more sense to tax their personal (not business) consumption via some sort of sales tax.

— Michael R. Caligiuri, CFP, EA, founder and CEO, Caligiuri Financial, Columbus, Ohio

7. I would change how Social Security benefits are taxed. Currently, the taxation of Social Security can almost double the marginal tax rates of low- and middle-income retirees. The details are complex, but the main idea is that at certain income levels, adding extra income will cause that income to be subject to income taxes and cause more of your Social Security benefits to become taxable as well.

For example, if you add $1,000 of income, you may also cause $850 of Social Security benefits to become taxable. A $1,000 increase in income can cause $1,850 of income to be taxed. While people who receive Social Security benefits think they are in the 10% or 12% tax bracket, the complicated method used to determine how much of your Social Security benefits are taxable leads to higher effective marginal tax rates, often around 22% for those in the 12% tax bracket.

— Larry Pershing, CFP, founder and CEO, Optimum Retirement Planning, Chicago

8. There's always one that drives me crazy and I have to educate clients on, and that is the notion that, as you age, the fixed income allocation in your portfolio should match your age. With today's interest rate environment, I am constantly having to show them that using that approach would be a sure way to shoot yourself in the foot.

Determining a fixed income allocation, which is a way to dial up or dial down the risk in a portfolio, would be based on a variety of factors — appetite for risk, ability to take risk and, last but not least, NEED to take risk. That risk control would be driven by age and goals. So there is no appropriate "rule of thumb" in this case and it has to be a case-by-case situation all determined after you've analyzed the numbers.

— Marianela Collado, CPA, PFS, CFP, CEO and senior wealth advisor, Tobias Financial Advisors, Plantation, Florida

9. As a CFP and CPA, I’d definitely change the SECURE Act removing the stretch IRA provision for non-spousal beneficiaries. I would just remove it so it goes back to allowing non-spousal beneficiaries to receive distributions from inherited accounts over their lifetimes. We continue to hear about the remarkable transfer of wealth that is about to happen. Couple that [with] the assumption that many of these inheritances from baby boomers will be occurring while Gen X is working at their highest-earning work years, and it’s a one-two punch.

— Maggie Klokkenga, CFP, CPA, financial coach and planner, Make A Money Mindshift, Morton, Illinois

10. I would change the limit on the amount allowed for a one-time HSA rollover and remove the one-time rollover limit, so that you could do more IRA-HSA rollovers. I think that limiting the amount you can roll over to the annual limit for your family is far too small. Most people have their assets in the 401(k)s, rollover IRAs and their home equity.

With the rising cost of health care, I think that allowing a limit of, say, $200K or so would be much more appropriate. This would allow MOST Americans to transfer money from their saved retirement funds to the HSA to cover health care costs as they age. This could remove the tax on essentially all dollars used for health care for most Americans in their lifetime and, in doing so, extend the life of their portfolio assets to improve quality of not only health care, but also financial life!

— Aaron Clarke, CFP, AIF, wealth advisor, Halpern Financial, Ashburn, Virginia