Tax Bill Creates Retirement Saving Opportunities

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retirementRight now, we're closing the January issue of the print edition of Registered Rep. In short, I am swamped. So, being a typical lazy journalist, I thought I would publish in whole an interesting summation of what the tax bill means to your clients (as if you don't know already!) from our friends over at The Hartford. This is aimed at retail investors but it's a useful script, talking points for FAs to grab more assets from their clients. (Oh, and help them meet their retirement goals.)

Our friend Dave Potter writes:

Yesterday’s passage of the tax relief bill, including the reduction in Social Security payroll taxes, creates some new opportunities for retirement savers across the economic spectrum. Whether you are wondering how you can afford to save for retirement or are worried that you may have saved too much, there is good news.

Two Can Get Your Three

The reduction in Social Security payroll taxes provides Americans with an extra 2 percent in take-home pay. Why not direct the extra paycheck earnings to your employer’s 401(k)? You can do so and not feel any loss in take-home pay.

If your employer matches contributions – say 50 percent on every dollar you contribute up to a specified ceiling – your 2 percent savings could net another 1 percent in savings the form of an employer match. That’s like earning 50 percent on your investment immediately.

Roth Rollover

Earlier this fall, Congress passed legislation allowing Americans who convert their 401(k) or 403(b) retirement plans to an in-plan Roth account to spread their tax liability over 2011 and 2012. The deadline for doing so was Dec. 31.

With President Obama’s signature on the new tax bill, the deadline for spreading your tax liability for Roth conversions has effectively been extended. You can now roll your 401(k) or 403(b) assets into an in-plan Roth and spread the tax liability over two years by converting half of your assets in 2011 and half in 2012.

Estate Tax Bingo

Believe it or not, there are some people who fear saving too much for retirement. They worry that assets they do not spend in retirement could be subject to the estate tax and leave their loved ones with a smaller inheritance.

Congress lifted the exclusion amount on the estate tax from a planned $1 million per person in 2011 to $5 million per person or $10 million per couple. The estate tax itself was reduced from 55 percent to 35 percent.

Raising the exclusion and lowering the tax means more affluent business owners, professionals and others can now max out their 401(k) savings ($49,000 annually), stuff more money into a cash balance plan or defer retirement dollars in annuities without fear of the death tax.

If you would like to learn more, I can put you in touch with Tom Foster Jr., an ERISA attorney and The Hartford’s expert on 401(k) retirement plans. You can reach me at 860-843-8993.

As always, thanks for your consideration.

Dave Potter

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Is the editor-in-chief of REP. magazine.  He is also a devotee of the Austrian School of Economics leading lights Ludwig von Mises, Friedrich von Hayek, Murry Rothbard and to other thinkers in...
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