Kelly Bullis: Congress changing retirement stuff

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Kelly Bullis

There are a few sacred cows that have unwritten rules to leave alone. One is Social Security benefits. Another is about 401(k)s. Well, the audacity of the current Congress is pushing them to open up one of those cans of worms.
Some changes are not bad but aimed at making things better. Like considering raising the age for taking required minimum distributions from 72 to 75. I like that one! Another is enhancing tax credits for small businesses that offer workplace retirement plans. Letting people age 60 and older contribute more to 401(k)s. Another of my favorites to make even better, expanding qualified charitable distributions made directly out of IRAs. Finally, another is letting employers offer student debt relief through workplace retirement plans.
Now for the negative changes. Depending on your point of view of course. One is requiring automatic enrollment in workplace plans, but at least giving the employee the option to opt-out. (Currently, it’s up to the employee to “opt-in” to a workplace plan.)
Another negative being bantered about in the dark halls of Congress… reducing the amount of pretax pay-ins to 401(k)s. Specifically, catch-up contributions to workplace qualified retirement plans, such as 401(k)s, to be considered non-deductible ROTH type classifications instead of the current arrangement of being fully deductible against taxable wages. This means the extra up to $6,500 contributed by workers who are 50 or older would automatically go into a ROTH 401(k), thereby NOT reducing taxable wages by that amount contributed. (The good news is when that portion of your 401(k) is withdrawn years later, it will NOT be taxed.)
One senator is jealous of folks who paid a high price to save early and invested wisely and grew their ROTH IRA account balance to over $5 million. He wants to prohibit further contributions when the ROTH IRA account goes beyond $5 million. This same senator also wants to block ROTH conversions for high income earners, locking them into tax paying retirement plans and Required Minimum Distributions.
He’s a Democrat from Oregon and is the chairman of the Senate Finance Committee (the one that writes tax law). So watch out. Joining this jealous senator are many other Democrats who don’t think that is far enough. They want to limit IRA activity for anybody with $5 million or more in their IRA account.
Getting back to some positive movement in the retirement plan world, Congress is interested in getting the IRS to spend resources teaching the low-income public about the “Saver’s Credit” that pays up to $2,000 for single or $4,000 for married folks with low Adjusted Gross Income (capped out at $33,000 for single and $66,000 for married folks) when they make contributions to a retirement plan arrangement. The credit is as high as 50% of the actual amounts contributed. I wonder how much money the IRS can spend to try to talk folks into doing something they just cannot afford?
So, there you have it. This Congress is willing to mess with one of the sacred cows of politics. Maybe it will help them. Time will tell.
Have you heard? Deut 32:34 says, “Is not this laid up in store with me, sealed up in my treasuries?”
Kelly Bullis is a certified public accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.