Displaying items by tag: 401k

Annuities are often disregarded for mental reasons. Frankly, many investors can’t stomach shelling out a large sum of money for a benefit far down the line, and that all bears out in the data, as deferred income annuities make up only 0.7% of annuity sales in 2020. But longevity annuities should be a consideration for many Americans in their portfolio, particularly for those who worry their finances won’t last. The CDC says Americans are living over 6 years older than in 1950 and that's a lot of accumulated income needed to be made up for. Longevity annuities come with a variety of benefits that integrate with your tax and 401(k) schedule.

FINSUM: The mental barriers of annuities are high but modern solutions like refund options and beneficiaries exist that can ease the traditional concerns of annuities.

Retirement is a rising concern for many Americans, and that concern is only amplifying with one of the largest retirement populations—social security—being funded by a much smaller cohort of funders. About half of the population is concerned they will out-live their savings, and that’s justified given average life expectancy is almost 20 years longer than retirement. However, the 2019 Secure Act is opening new doors in retirement investing, annuities, by relieving employers legal liability for annuities. Rather than the typical safe assets like bonds that slowly integrate into the portfolio as one nears retirement, companies like BlackRock will also fund annuities. They aim to allocate 10% of your funds by the age 55 and take that share to nearly 1/3rd by retirement age. These annuities typically come with a fixed rate of return on the principle and these integrated 401k plans will become available starting in 2022.

FINSUM: Annuities can definitely bridge the gap for those skeptical that social security will fill their cup, but they still come with plenty of risk despite the ‘guaranteed’ income many might expect.

(Washington)

Congressional Democrats are pushing for more ways to increase taxes on wealthy Americans, and their newest mechanism is closing a loophole on Roth IRA contributions. Currently, people making in excess of $400,000 can convert pre-tax retirement saving accounts into a Roth IRA. Technically, individuals can’t contribute to their Roth if their income exceeded $140,000, but the ‘backdoor’ loophole allowed you to convert the pre-tax contributions into a Roth IRA. Additionally, House Democrats are trying to end the ‘mega backdoor’ Roth’s which were saving up to $38,500 for wealthy individuals. The Democratic proposal also is requiring minimum reporting for certain balances and further Roth restrictions. These are significant changes to the potential tax code for the wealthiest, and if implemented these provisions would all come into effect Dec. 31, 2021.

FINSUM: Democrats are also considering automatic enrollment in Roth retirement vehicles in order to boost retirement savings on the lower-income spectrum. These are some of the largest changes to the tax code in recent years, all in an attempt to boost the tax base and pay for a $3.5 spending bill.

(Washington)

Asset managers, other industry participants, and others on the left have been outraged over the last several weeks about a new DOL proposal that would essentially bar ESG investments from being included in 401(k)s. Multiple large asset managers, including BlackRock and T. Rowe Price have issued statements asserting how out of touch the new DOL policy would be with current wealth management trends. The general attitude of asset managers is that the DOL is trying to solve a problem that doesn’t exist. According to T. Rowe Price, “There is no factual support for the proposition that ESG is being misused currently … Accordingly, the proposed rule’s efforts to impose new requirements on fiduciaries’ consideration of ESG is not necessary”.

FINSUM: We understand the concern about making sure 401ks put economics first, but there just does not seem to be enough evidence of misbehavior to warrant this kind of restrictive policy. Furthermore, ESG funds have been outperforming conventional ones since the start of the pandemic!

(New York)

Even advisors who use fixed index annuities frequently may not be aware that under the new SECURE Act, the products have gotten some preferential new tax treatment. In particular, clients can now rollover 401ks, 401bs, IRA, or pension payment into a fixed index annuity tax-free. This obviously comes in addition to the fact that FIAs are tax deferred to begin with.

FINSUM: This seems like a very useful addition to the FIA universe provided by the Secure Act. Advisors should be aware.