The news about the threat President Obama has placed on the qualified plan(s), somewhat came as a surprise. Though retirement has always been a hot topic, we knew limitations on the plans were going to come to a head sooner or later – considering how many Baby Boomers are scheduled to retire in the next 20-30 years.
Boomers make up about 35% of our current country’s population and a lot of them lost most of their retirement in 2008 (immersionactive.com). There is also study after study indicating how individuals are saving less and less for retirement. (USA Today) With those statistics in mind, the question then becomes: Who is going to pay for all of these retiring Baby Boomers? I’m assuming that the current Administration thinks the working American public will.
The 2016 budget proposal from the White House called to close retirement loopholes that they think have allowed wealthy individuals to exploit as tax shelters. (msn.com – money)
There are over a dozen revisions proposed, that if became law, could directly impact the qualified plans(s). Here are a few of the key provisions outlined below:
- After-tax dollars held in your traditional IRA/ 401(k) cannot be converted into a Roth account, making those earnings no longer grow tax-free
- Limiting the tax benefit for contributing to an IRA or 401k to 28%, making those in a higher tax bracket ineligible to receive a full deduction.
- Putting a cap on new contributions to any tax favored retirement accounts (IRA and 401ks), once the combined balance on those accounts reaches 3.4 million dollars, you wouldn’t be able to put in any more money.
The chances of the White House successfully pushing these particular changes through Congress are slim. However, the notion that the rules on your qualified plan (IRA, 401k, Roth, etc.) could be re-written is a hard pill to swallow.
The reality is, anytime money is put into a qualified plan, it is like hitching a retirement trailer to the government – they’re driving and you’re just following. They have the power to change the rules at any time.
For this reason, Whole Life Insurance for retirement makes complete sense. When you implement a banking policy, you are naturally insulated from changes made to any qualified retirement plan. Life insurance policies are not government sponsored. The binding contract is between you and the insurance company, which means your policy is not subject to government control.
Since most people already have a qualified plan, I recommend implementing a permanent life insurance policy alongside your pre-existing retirement vehicle to help mitigate any possible legislative risk. Contact a Paradigm Life agent or visit Infinite 101 to find out if this strategy would be appropriate for you.
Eric Patterson
Watch: Know Your Retirement
Listen: A Better Financial Future
