Our daily roundup of retirement news your clients may be thinking about.
The routine 401(k) move that sabotages your savings
Forced rollover of 401(k) assets to IRAs are likely to become a fiasco for account holders, according to a report from the Government Accountability Office. Since regulations require the transferred assets to be placed in low-risk investments, account holders are likely to end up with negative returns after IRA providers deduct the fees. Regulators need to change the rules to allow forced transfer IRAs to be invested in target-date funds and help account holders to avoid losses, according to GAO. --MarketWatch
Why people cant save on their own
Although people need to prepare for retirement, building a nest egg seems very difficult for most people, writes Ted Jenkin, co-CEO and founder of financial advisory firm oXYGen Financial. One effective solution to this problem is to automate the transfer of money from workers' paycheck to their retirement plans, says Jenkin. Another way is "to create a pension plan with good long-term investment options that cannot be touched until retirement age." --The Wall Street Journal
Will Illinois' automatic retirement plan become U.S. model?
Workers in Illinois will be enrolled automatically in individual retirement accounts if they have no retirement plans, according to an article on DailyFinance. The plan is designed to enable people "save for retirement with the benefit of a simple product for a low fee," said Illinois State Sen. Daniel Biss. The New York Times even suggested that the federal government and other states use the Illinois plan as a model for creating retirement plans. --DailyFinance
On day one, the new Congress launches an attack on Social Security
After convening yesterday, the Republican House of Representatives approved a rule that will seriously undermine efforts to keep all of Social Security solvent, according to business columnist Michael Hiltzik of the Los Angeles Times. A rule that would prohibit Social Security from reallocating the payroll tax income from the old-age program to the disability program has cleared the House of Representatives. The reallocation should be disallowed provided it comes with benefit cuts or tax increases that would enhance the combined trust funds' solvency, according to the National Committee to Preserve Social Security and Medicare. "It is hard to believe that there is any purpose to this unprecedented change to House rules other than to cut benefits for Americans who have worked hard all their lives, says Max Richtman of the Committee to Preserve Social Security and Medicare. -- Los Angeles Times
Heres a smart strategy for reducing Social Security taxes
Retirees aged at least 66 can continue to work while collecting Social Security benefits without any reduction, according to this article on Time Money. However, they may be placed in a higher tax bracket, which will subject their Social Security income to higher taxes. In the most extreme case, they may face Social Security tax amounting to as much as 85% of their benefits if their combined income, which is the sum of adjusted gross income, non-taxable interest income in the past year, and half of Social Security benefit, exceeds $25,000 for single taxpayers or $32,000 for joint filers. --Time Money
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