(MP) Each new year, new legislation, court cases, and market conditions impact retirement investments and planning. And 2015 was no different. The retirement investing markets saw a wave of new financial products. And with certain financial products came changes in investment markets, and a variety of legal changes. However, we have some changes that took place in 2014 that will affect everyone taking part in retirement investing and/or filing taxes in 2016. What you should know?
Which Retirement Investment Changes Should You Implement
1. IRA and IRA Rollover Reductions:
You use to be allowed to receive a distribution from an IRA and roll the funds over to another IRA, or even the same IRA, within 60 days to get around any taxation issues. Following the recent Babrow v. Commissioner tax court decision, the 12-month one rollover limitation now pertains to all IRAs, in other words just one 60-day rollover is allowed per 12-month period regardless of how many IRAs someone owns.
2. Longevity Annuities to 401(k)s:
New rules due to the Treasury changed in 2014, allowing the use of longevity annuities in 401(k)s and IRA markets. You may now hold a qualified longevity annuity contract (“QLAC”) within retirement investments (IRA or 401k’s) worth up to the lesser of 25% of their total account balance or $125,000. The original concern with a QLAC was that the annuity would not begin payments until later after the person was the subject of the required minimum distribution rules, which start working once someone reaches 70 ½ yrs of age. By the new rules, the QLACs are excluded from the retirement account balance when calculating required minimum distributions. This rule change gives people engaging in retirement investing another tool to produce a well-developed retirement income plan.
3. Creditor Protection Changes:
Overall, qualified retirement investments, for instance 401(k)s, pensions, and IRAs, have good creditor protections. However, in 2014 the Supreme Court shortened the protections offered by IRAs. Traditionally, up to $1.25 million are secure from creditors if held within a Roth or Traditional IRA under federal bankruptcy laws. Recently, the U.S. Supreme Court, in Clark v. Rameker, stated that inherited IRAs are not “retirement funds” and, therefore, have no creditor protections afforded under federal law. This Supreme Court ruling could change how some people decide to bequest assets to their heirs due to lack of creditor protections afforded in the inherited IRA. Instead, certain kinds of trusts or instruments allowing for a spend-thrift provision might provide better creditor protection if that’s a primary concern.
4. MyRA Retirement Accounts:
A different type of ROTH IRA, the myRA, rolled out in 2014 thanks to President Obama and the U.S.Treasury. This cool ROTH IRA helps those (earning under $129,000 annually) and married couples filing jointly (earning less than $191,000 annually) that have no accessibility an employer-sponsored retirement plans. MyRa gives you the ability to save for retirement through low cost and tax advantaged savings vehicle. The maximum contribution to the myRA will be the same as the annual ROTH IRA contribution limits, $5,500 per year ($6,500 per annum for individuals aged 50 and over). The myRA is free for employers to make available for employees as they will not administer accounts or contribute money to them. The employee’s contributions are taken directly out of their payroll through direct deposit and invested in a principal guaranteed variable rate government security. Ultimately, the myRA people a low cost way to save for retirement
5. Expanded Access to Annuities:
In a different effort to give qualified defined contribution plan participants additional access to a guaranteed income stream, the Treasury Department and the IRS issued guidance, IRS Notice 2014-66, allowing expanded access to annuities inside of 401(k) plans. The new rules allow 401(k)s to provide target date funds that include deferred income annuities as the default investment option. The target date fund can include annuities that begin payments as early as retirement or at a much later age. This offers individuals yet another way to generate some guaranteed retirement investments income and protect themselves from exhausting their funds later in retirement.