Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.
The House is considering legislation that would enable seniors to sock away money in a tax-advantaged health savings account even after signing up for Medicare, according to an article from CNBC. An HSA offers triple tax benefits: tax deductible contributions, tax-free growth and tax-exempt withdrawals for qualified medical expenses. However, seniors would no longer be allowed to use HSA funds to cover Medicare premiums and withdrawals for non-medical expenses would no longer be penalty-free under the bill.
Making enough 401(k) contributions to qualify for the employer’s match is one way to maximize benefits , according to an article in Kiplinger. Clients can direct extra savings to a target-date fund, which automatically rebalances over the years to stick to its target allocation. They may also contribute to a Roth 401(k) to help boost their after-tax income in retirement —if their retirement plan offers such an option.
High-net-worth clients who cannot contribute directly to a Roth IRA may have the option of transferring up to $37,000 to the account this year using the so-called mega backdoor Roth strategy, according to a NerdWallet article. Clients should have after-tax contributions in their traditional 401(k) plan. Their employer must allow either in-service distribution to a Roth IRA or a fund transfer from the plan’s after-tax portion into the Roth 401(k) part. Clients should also have extra money to save — even after maxing contributions to their traditional 401(k) and Roth IRAs.
The “stretch IRA” strategy — which allows inherited IRA assets to continue growing tax-deferred for years after the death of the owner and enables non-spouse heirs to spread the withdrawals over their own life expectancy — would be scrapped under the SECURE Act that cleared the House recently, according to a Kiplinger article. The bill includes provisions that would give heirs 10 years to draw up all the funds. Although IRAs are not designed to be estate planning tools, “changing the rules of the game is not fair to savers,” says retirement expert Ed Slott.
