From the desk of Peter Blatt
April 25, 2013
This Blatt Watch is a special warning to our clients and friends. It will give you some time to prepare and protect your retirement.
On April 5, the White House released Obama’s Budget for 2013. Tucked in there is a new law that is designed to cap retirement savings for small business owners. Read it for yourself:
“Sets limits on tax-preferred retirement accounts for millionaires and billionaires: The budget will also show how we can provide targeted tax relief to strengthen the economy, help middle class families and small businesses and pay for it by eliminating tax loopholes and make the tax system fairer. The budget will include a new proposal that prohibits individuals from accumulating over $3 million in IRAs and other tax-preferred retirement accounts. Under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving. The budget would limit an individual’s total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million in 2013. This proposal would raise $9 billion over 10 years.”
What do these retirement savings caps mean?
The way most defined benefit plans work is they state how much you need to save in order to have a certain amount per month of income when you retire. The way defined contribution plans (401k, profit sharing, IRA) work is they state how much you can “deduct” and save.
What this tells us is that the Government now will limit the amount you can put into either plan. If you include growth in that target then the actual amount that you have in your own defined benefit or contribution plan could be very little! This would cause the total amount that you as a business owner could put away to be capped at the same amount as your employees.
Under current plans the IRS and the Department of Labor allows employers to legally discriminate against certain contributions for employees. Most business owners tend to put in retirement plans that significantly benefit their own interests. This new law will restrict your ability to do that.
What to do about these limits?
The best plan of action in light on this proposal in terms of achieving asset protection and boosting retirement dollars is to find plans that don’t fall within the restrictions of the new rule. There are several available plans approved by IRS rules. The key is diversification among plans, just like you would diversify among investments.
We can help you with your financial planning. Ask for a plan today that will not run afoul of the new rules. Ask to test your current plan against this new limitation. Ask by calling me right now at (561) 625-0900 x2.
Until next time,