Failing to take an RMD leads to a harsh penalty – 50% of the shortfall. But the proposal would eliminate RMDs if the cumulative retirement account balance is under $100,000. This would help keep smaller balances in the system, giving accounts more time to grow.
Proposal: Mandatory Auto IRAs for Small Businesses
Businesses that are at least two years old with more than 10 employees would be required to auto-enroll employees into an IRA, assuming there is no existing workplace retirement plan. There would also be incentives for employers to offer a company-sponsored plan.
What’s the devil in the details here? The first three proposals seem to be an attempt to limit the use of retirement accounts for estate planning or wealth transfer. That may or may not make sense from an overall budget perspective, but we need to ask if placing limits on retirement savings is the right message to send at a time when we are focused on getting people to save more.
The final two are more consistent with the Administrations’ focus on retirement in that they are designed to help get people into the retirement system or help them stay in it. And that approach – getting people into the retirement system, making it easy for them to save, and encouraging them to stay – is one of the promising ways forward when it comes to solving the retirement crisis.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.
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