Among the issues for our legislative branch to ponder is the topic of financial regulatory reform. This is the touchy area of how and why the economic meltdown happened in the past year and preventing the next banking crisis from ever happening again. Within the reform is a proposal regarding IRAs that will attempt to get more workers to save for retirement.
This proposal is for employers to set up mandatory automatic- enrollment IRAs. And if the plan passes, companies would put employee contributions into IRA accounts through direct payroll deposits. We all know how easily we put off financial decisions. The benefits packet is full of forms and charts and typically there are web sites with all the self-help tools.
Even the decision of choosing a mutual fund from the vast selection offered by the 401(k) provider, can be intimidating. So the busy employee does nothing. It is a real shame to have an employee retirement plan offered and not to seize the opportunity. In some cases, that avoidance means missing a matching contribution from the employer as well.
At least this proposal gets the retirement ball rolling. Then for the next step, seek out good financial advice in order to make that IRA money work hard for you while you are working hard too. At the end of 2008, the president signed an act that suspended the required minimum distributions (RMDs) from IRAs, 401(k)s and 403(b)s. Previously, it was required that a person turning age 70 ½ had to begin taking withdrawals. Typically, the amount of the withdrawal was based on a formula using life expectancy tables. Since the law was signed at the end of 2008, it went into effect for this year, 2009.
The good news, this act allows the retirement funds to continue to grow tax free and hopefully, those accounts that are invested in the stock market will have time to recover from the effects of the bear market. This is a one-time change, perhaps to be extended into 2010. But if you don’t need to take money out of your retirement plans, congratulations, you have planned well.
As always, consult with a tax advisor for the latest tax information and how it may impact your financial situation. Future articles will cover more retirement topics, including plan types & terminology and the difference between traditional and Roth IRAs.