Public Policy Changes May Have Negative Impact on Retirement Plans

 Posted on June 21, 2014 in Estate Planning

If you are approaching the age of retirement, or are currently planning your finances for your golden years, you probably have been following a set plan. However, a recent article indicates a few proposed changes in the current public policy that are on the table for the 2015 fiscal year budget. And these changes could have a serious impact on retirement plans.

IRA Distributions

Currently, there are no required minimum distributions rules for ROTH IRAs. The pending change would reverse that by implementing required distributions after the owner is 70 ½ years of age. This can cause people to take out more money than they actually need instead of investing it. This has a trickle-down effect that includes higher taxation as well as a higher amount of Social Security being taxed.

Cap on IRA Wealth

Though the cap that is being proposed is substantial, it is still a cap. This change will impact only those that are used to a very high standard of living. The cap will be $3.2 million. Once that cap is reached, no further contributions will be allowed. The worrisome part is that the 401(k) and 403(b) is also included in the figure with the IRA. This would lead to a reduced amount of retirement savings for some.

Social Security Benefits

The proposed reduction of Social Security benefits could potentially be the most damaging as Social Security accounts for nearly 40 percent of retirement income. Possible changes include an extension of the retirement age as well as decreasing the monetary amount of the benefits. However, the greatest proposed change involves the claiming strategies for Social Security as the government is looking to "eliminate aggressive Social Security claiming strategies, which allow upper-income beneficiaries to manipulate the timing of collection of Social Security benefits in order to maximize delayed retirement credits." This could change the planning strategies that are currently in place for middle and lower class retirees.

These changes could significantly impact your retirement planning. Hence, this is why it is so important to meet with an estate planner regularly to review your documents and discuss trusts or other vehicles. For questions regarding the 2015 proposed public policy changes and how they can impact retirement plans, please contact an experienced Illinois estate planning attorney today.