Have you heard the expression, the devil is in the details? While that may sound sinister, it simply reminds us to look beyond the topline story to see what’s really going on. President Obama’s State of the Union speech is a case in point. The topline story was the focus on retirement, which we applauded, and the new myRA, which I wrote about previously.
The President’s budget proposals, however, may reveal more about the administration’s overall vision for retirement policy. Keep in mind that these are proposals; unlike myRA, which was launched by executive action, the proposals need to be passed by Congress. I’ll leave it to others to handicap the odds. For now, let’s take a look at some of the more noteworthy details:
Proposal: Harmonizing RMDs for Roth IRAs
Currently, Roth IRAs are not subject to required minimum distributions (RMD) until the death of the account holder, making them popular for estate planning. The Administration is proposing, however, that Roth IRAs be subject to the same RMD as most other retirement accounts. In other words, distributions would be required after age 70 ½.
Proposal: 5-year Rule for Non-Spousal IRAs
Things would change for some distributions from traditional IRAs as well. With a few exceptions, IRAs inherited by a non-spouse would require full distribution within five years. Previously, the heirs could take distributions across their life expectancy.
Proposal: Capping Retirement Savings
This one may sound familiar since it received a lot of attention last year. It proposes a formula that would prevent additional contributions to retirement accounts after balances reach a certain limit, which would currently be about $3.2 million.
Proposal: Eliminate RMDs on Savings Less Than $100k