Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.
Just 40% of self-employed workers polled by the Transamerica Center for Retirement Studies expected that a percentage of their retirement income would come from a tax-advantaged savings vehicle, according to an article from Barron’s. Research also found 31% of self-employed workers are using an IRA to build their nest egg, 21% are saving with a 401(k) and fewer than 10% are using a tax-advantaged account, according to the study. “We can’t overestimate the influence of having access to employer-sponsored retirement plans — it lends itself to great knowledge,” says Catherine Collinson, the center’s chief executive.
Clients stand to gain from maxing out the contributions to their retirement accounts such as 401(k)s and IRAs in the early part of the year, according to this CNBC article. That’s because it will give their savings more time to grow through the power of compounding on a tax-deferred basis. “From our research, we believe that an investor that maxes out their IRA at the beginning of each year would have an additional $8,800 after 10 years compared to those who wait to make their contributions until later in the year,” says a CFP from Betterment.
In order to boost workers’ retirement prospects, the 401(k) plan should be revamped, says Morningstar columnist, John Rekenthaler. Instead of defaulting new workers into a single target-date fund, these employees should have their assets divided into two accounts — one being the target-date products, or the “growth” asset, and the other account serving as their retirement income fund. “Expecting workers to give up their lump-sum 401(k) assets in exchange for the promise of monthly income, is asking too much … With the two-fund approach, though, no change is required,” the expert says.
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When a tax-deferred account is part of an estate, failure to follow the tax rules correctly can result in a financial disaster.
February 17 -
Clients who make these prohibited transactions can face devastating penalties.
February 1 -
There are limits to how much clients can contribute — exceeding these thresholds can result in costly penalties.
January 3
Clients needs to know the pros and cons before including annuities as part of their retirement strategy, according to an article on Kiplinger. Annuities provide guaranteed lifetime income and tax-deferred growth on investments, with the distributions taxed as capital gains instead of ordinary income. However, annuities come with hefty fees and investors will miss out on strong returns from the stock market once they annuitize their savings.
