President Obama’s budget proposal hurts your IRA’s and Roth IRA’s
Just when you thought it was safe (queue theme song from Jaws), President Obama has a wish list for YOUR IRA’s and Roth IRA’s. As much as our President likes you saving for retirement, his budget proposal won’t benefit you as much as it will Uncle Sam.
These items ARE NOT LAW YET, but they very well may be. If you’re not planning for retirement using the right strategies you may be missing the boat! Here’s a breakdown on the President’s budget proposal.
IRA rules change
First on the chopping block is the benefits non-spousal IRA beneficiaries enjoy. If your non-spouse beneficiary is smart they’ll stretch their required IRA withdrawals over their lifetime. This defers the taxes due as long as possible. It also allows the funds to grow tax-deferred as long as possible.
Under the Presidents budget wish list the distribution would be chopped to 5 years maximum. If your IRA is inherited by a non-spouse they would be forced to liquidate it within 5 years. Along with the distributions come the taxes due, the IRS wants their money after all and this proposal would speed up the amount of time it takes them to get it.
What does this mean to you? The legacy you worked so hard to build up inside of a retirement account will be decimated within 5 years. Currently that legacy would last the entire lifetime of your non-spouse beneficiary if done correctly.
This is unfortunate if it passes. I like the thought of leaving my boys an IRA or ROTH IRA with my name on it. They can draw from that IRA or Roth each year for the rest of their lives. That’s a pretty cool concept!
Roth IRA’s currently have no requirement for distributions. You can leave the Roth IRA in tact until you die. At your death you’ll pass those tax-free assets along to your children.
President Obama doesn’t like that rule apparently. He’s proposing mandatory required distributions on you Roth IRA just as with your regular IRA. This substantially reduces the amount you could leave your kids tax-free.
Current laws allow you to make Roth contributions after age 70 and 1/2. In the new budget proposal you wouldn’t be allowed to fund a Roth IRA after this age.
While these are just proposals they bite pretty hard! A lot of the planning we do for retirement involves IRA’s and Roth IRA’s. This would eliminate some of the IRA and Roth IRA benefits. It severely reduces others.
Let’s hope the President doesn’t get his way with these proposals. It will hurt too many middle income families who’ve relied on the current options available to save and plan for their retirement.