Proposed new retirement savings options

[quietman]

News story that the White House is proposing or enacting new rules for retirement savings.

Recession hits nest eggs; US promotes ways to save - Yahoo! News

Most of the changes seem pretty small - automatic enrollment - automatic percentage enrollment increase - option to take tax refund as Savings Bonds.

There was one section I'd like to know more about:

Allowing workers, when leaving a job, to direct unused vacation pay to a retirement savings account rather than taking it in cash

Is that in addition to 401k and IRA? Are there limits?

 

[Stevewc]

The first thing that popped in my head when I saw this on the news was:
Do TIP bonds instead of regular savings bonds. If this starts to fly everyone needs to write congress to get the TIP thing going.

In my 457 plan at work we are allowed to direct built up vacation pay to the 457 at retirement. Max is currently 320 hours of pay.
Steve


Edit: After giving this a little more thought, the regular bonds are available in smaller denominations so would probably work better for a larger part of the population. But TIP's would be a nice option if it could be worked out by the genius's in congress.

 

[Stevewc]

Maybe "I Bonds" would be a good way too, if this retirement savings thing gets off the ground. Basically anything with inflation protection built in.
Steve

 

[thefinancebuff]

There was one section I'd like to know more about:

Allowing workers, when leaving a job, to direct unused vacation pay to a retirement savings account rather than taking it in cash

Is that in addition to 401k and IRA?

Probably not. Just a convenient way to bump up 401k contributions on the way out. Still has to stay under the annual limit. Going above the annual limit requires new legislation.

 

[quietman]

Thanks. I found the IRS rulings on the subject, but they were in impenetrable mess of references to other sections. The only actual dollar limit I found there was no more than $40,000 per year, but it was impossible to tell if that was a change or a reference to some other kind of retirement program I'm not familiar with. I'm hopeful someone who can "interpret" these kinds of regulations will discover that the squirrely language does indeed allow these contributions beyond the normal limits (probably unintentionally) and maybe we can take advantage of the window it opens before corrective language is enacted, but it's a long shot hope.

 

[Stevewc]

There is now a thread started up at Bogleheads on this subject:
You may want to check it out.
Bogleheads :: View topic - Bogleheadish Initiatives to Increase Retirement Savings

It appears you will be able to choose I-Bonds

I haven't had time to read at the IRS site yet but it seems there ia already info there also.
http://www.irs.gov/retirement/article/0,,id=212061,00.html
Steve

 

[LOL!]

I didn't make an attempt to read the regulations, but since these changes are from the executive branch they are probably not substantive. On the question of unused vacation pay, as tfb suggested, i would suggest that it means the unused vacation pay is just like any other paycheck: one could have 401(k) contributions withdrawn from it. One would still be subject to any statutory contribution limits as well as plan contribution limits. For example, you leave your job, but have not maxed out your 401(k) contributions for the year, so you adjust withholding from paycheck to your plan's limit of, say, 90%. So 90% of your unused vacation paycheck goes into your 401(k).

Since my employer plan does not match per-paycheck, I try to max out my 401(k) contributions as early in the year as possible. Then I don't have the "I didn't max out the 401(k) this year" clouding any decisions to quit later in the year.

 

[Notmuchlonger]

How about making all retirement contributions tax free

That would be a meaningful start.

 

[wildcat]

Nice of them to investigate new options at a time when 401k max amounts are likely to drop

How about scrap that idea too?

 

[ziggy29]

Nice of them to investigate new options at a time when 401k max amounts are likely to drop

Well, since food and utilities and health care and insurance and taxes are all so much cheaper with all this "deflation," why not?

 

[Stevewc]

On the unused vacation:
I'm over 50 so the make up & catch up parts of my 457 plan will help me build the fund up, right here at the end/retirement. Every little option and bit of money in helps. I wasted a lot of my working years as far as tax advantaged accounts. I just didn't realize how smart it would have been to take advantage of whats available in retirement funds, IRAs, etc. I contributed some but not near what I could have and should have.
I truly wish I had known about forums such as this early on in my career.
Steve

 

[Dennis]

Stevewc?

Don't be hard on yourself on that .. Even if you did, most couldn't do wthout that $ and saving it, while Building a Family, home, etc.. It's easy to think one would have saved more, but not in most cases.. With a Family? There is Always a Home for $... and Many are taking $ out of their Savings /Pension plans to pay for their kids College and I think that is a Big mistake..We paid our own way and did alright and stayed in School alot longer and more graduate when they have their own $ on the line..and not having the parents sacrafice their Retirement..

Best Financial Commitments we made? Having a 15 yr Mortgage and pouring extra $ into the Home itself and into Camping trips as a Family.. Looking back, the wife agreed, if we had extra $, ( longer Mortge) she would have spent more on the kids and spoiled them alot more.. They all went to College or trade schools and are doing super..and paid their own ways..and are prouder than ever for forcing them to do that.

It's Like " Gee, I should have kept my 67' GTO or my 57' Chevy, etc.. look at what they're going for now? " fact is, If you did? It have 100k+ miles on it and cost you twice as much to keep it fixed up even from 70-2009 = 39 yrs at Ave $300/yr for storeage is over $11,700 alone. Throw inflation in and your over $15k alone.

I had both, BTW.. ;-)
and PS.. These Forums and the PC and Internet are not that Old .. Prior to the Late 90's? Most of us didn't play with them, let alone there were very few Sites in the first place..

 

[thefinancebuff]

I didn't make an attempt to read the regulations, but since these changes are from the executive branch they are probably not substantive. On the question of unused vacation pay, as tfb suggested, i would suggest that it means the unused vacation pay is just like any other paycheck: one could have 401(k) contributions withdrawn from it. One would still be subject to any statutory contribution limits as well as plan contribution limits. For example, you leave your job, but have not maxed out your 401(k) contributions for the year, so you adjust withholding from paycheck to your plan's limit of, say, 90%. So 90% of your unused vacation paycheck goes into your 401(k).

I read the revenue rulings. Basically if you have an option to receive the unused vacation time as cash, the contributions to your retirement plan counts as employee elective deferral, subject to the same 402(g) $16,500 limit. If a company does not give the cash option, and it automatically puts any unused vacations into the retirement plan, then the contributions do not count toward the employee elective deferral limit. I don't know of any company that does it this way though.

The plan's contribution limit as a % of compensation usually is per year, not per paycheck. Theoretically if the plan allows it, you can put 100% of the value of the unused PTO into your 401k if you haven't maxed both the $ limit and the % limit.