Our daily roundup of retirement news your clients may be thinking about.
Social Security benefit formula robs older workers
Older workers can expect an increase in Social Security taxes next year but they won't get as much in return, writes a Forbes contributor. "The Social Security Administration is pretty good about giving people a projection of their retirement benefits. What it’s not helpful with is showing what’s going on under the hood when the benefit is calculated, or how changes in earnings histories would move the needle," the expert writes.
A little-known retirement tactic for government employees
Government workers who want to reduce their non-taxable income in retirement may want to consider contributing up to 10% of their salary to a voluntary contribution plan, according to this article on The Wall Street Journal. The plan is funded with after-tax dollars, and the savings grow tax-deferred. Clients can transfer the funds to a Roth IRA regardless of the amount, allowing them to bypass the contribution limits for Roth and take advantage of the account's tax-free withdrawals in retirement.
How earnings are taxed in 401(k)s
Clients are allowed to move their Roth 401(k) assets to a Roth IRA, and should wait five years or reach the age of 59 1/2 before they can take Roth distributions without facing a tax liability on the portion that represents earnings on their 401(k) contributions, according to this article on MarketWatch. The employer match and its earnings are subject to tax when the funds are withdrawn, but clients pay no taxes if the money is moved into a traditional IRA. The distribution rules for traditional IRA apply when clients decide to withdraw the funds.
Your retirement won't be a dream if you don't get real
Only a small number of Americans have saved enough for retirement, with most people having no adequate savings to secure a comfortable life in the golden years, writes an expert on USA Today. "The bottom line is, you can either change your actions or change your expectations," the expert writes. "At some point, lowering expectations is no longer a viable strategy. Action (saving more money) puts time on your side. Inaction seals your fate."
Think your retirement plan is bad? Talk to a teacher
Compared with a 401(k) plan which is provided to workers in the private sector, a 403(b) plan is less regulated, putting at risk the retirement prospects of public school teachers, clergy members, employees of religious institutions or nonprofits, and some charities, according to this article on The New York Times. An analysis has found that 403(b) participants are losing almost $10 billion to exorbitant investment fees annually. “It’s a wealth transfer from those who don’t know any better — Main Street — to those who do: Wall Street,” says an expert. “What makes me the most angry is that public school employees are not protected the same as their private sector counterparts.”
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