There are some things to dislike about some of the retirement-related provisions in President Obama's recently unveiled spending blueprint, but there also are a few items that we can all support.
As I've said before, the president's proposed cap on retirement accounts should be junked.
The idea, which I strongly doubt will get far in Congress, is to allow us to save up to $3.4 million in whatever tax-favored retirement accounts we might have. Any amount beyond that wouldn't get the tax break.
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Of course, given the amounts involved, very few people would ever have to worry about this. So why worry, right? Actually, the problem is that caps just send the wrong message about saving. We should be encouraing everyone to save as much as possible.
Also, because it would be tied to the amount of money required to purchase an annuity that pays $210,000 a year, there's also the question of how far the cap might fall as interest rates rise.
Perhaps worst yet, the cap feeds into criticisms about the president's alleged bias against the wealthy.
Elsewhere in the proposed budget, Obama's other big retirement-related proposal, mandatory auto-enrollment in IRAs for certain small businesses, deserves bipartisan support, though I'd like see one important change made.
As outlined, companies with more than 10 workers would be eligible for tax credits in exchange for offering an automatic IRA option to employees.
It's a good idea, except that, as Ed Slott and Co. IRA expert Jeff Slott points out, the default option in the proposal is a Roth IRA, which comes with penalties if you contribute beyond their thresholds. So, instead of a Roth, the default should be a traditional IRA, which comes with no income limits for contributions. Make that change and we're golden.
Speaking of IRAs, Obama also wants to require Roth IRA account owners to take minimum distributions at age 70½. I'm no fan of required minimum distributions in general, and this is yet another example of government overstepping its boundaries. Let's hope Congress squishes this one without much trouble.
Another Obama proposal I do like would allow workers to roll over retirement plan annuities if their employer were to drop them as investment options. Anything that encourages workers to take steps to secure a lifetime income stream deserves support.
In that vein, the president also wants to expand the number of workers who would be eligible to enroll in workplace retirement plans by allowing part-timers to participate.
Eligibility would be based on three consecutive years of working at least 500 hours a year for the same company. As far as I can see, there's absolutely nothing wrong with this proposal and, in fact, aside from administrative costs, nothing stopping any good-hearted employer from making it part of their benefits package right now.
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