I am referring to the laws affecting retirement plans, specifically IRAs, and recently proposed plans referred to as retirement savings accounts (RSAs) and lifetime savings accounts (LSAs). Essentially, the RSA will replace the current IRA, and allow you to contribute up to $7,500 per year to this plan. The contribution is not tax-deductible, but the money accumulates tax-deferred, and when you withdraw the money, it comes out tax-free, if you wait until age 58 to withdraw any funds. Does it sound like the Roth IRA? It's a "new-and-improved" version.
The LSA is similar to the RSA in that you can contribute up to $7,500 per year, and the earnings accumulate tax-free, but the distribution is not tied to any retirement date. You can pull the money out at any time. It's really a tax-free savings account.
Doesn't that sound good? Remember, I said these are the "proposed" suggestions. Even if they are final, I can assure you the IRS will keep monkeying with these plans, as they've done with the IRA; the Roth IRA; the SEP; pension plans; profit-sharing plans; defined benefit plans; VEBAs; 412-I plans; and so on. The ride is ever-changing. As I said earlier, here we go again!
The IRA used to be so sweet and simple: a gentle ride with a $2,000 required contribution per year. Then they changed who qualified for the 100-percent-deductible versus the nondeductible version. Then there was the spousal IRA, and the changes that took place with that plan. Suddenly, the government needed cash, so it invented the Roth IRA to seduce everyone to pull out IRA money and have it taxed immediately, so ultimately, one received one's money tax-free. Then came the increased contributions and the "catch-up" provisions. Now we move into the era of the RSA and the LSA. We've ended up with more initials and changes, and the ride gets changed again and again. Are you beginning to feel as if you've been to this park before and ridden the ride, but now that you are on it, every turn is different and nothing is really the same? Hold onto your hats, because here we go again!
Why the changes? The change to the Roth IRA was fomented because the government needed to get to all that money that was sheltered in IRAs and wouldn't be taxed for years. It succeeded. Now, it wants to get the economy moving, so it will offer some incentives for people to save money and shelter it now, and have a tax-free flow later. The idea seems good, but what will happen when the government needs a quick shot of tax dollars again? The ride will change, a whole new set of initials will be announced, and you will get a tax break to allow the IRS to get to your money again. It's quite dynamic!
I'm not quite sure what the final plans will look like for the RSA and the LSA. I'm certain they will offer the tax-free accumulations and withdrawals, but who knows what the "fine print" will say. It really doesn't matter, since I also am certain that in another year, the plan will change again, depending on what the IRS needs at that time.
If you have read any of my previous articles, you have heard me comment on "nonqualified" plans that allow for tax-free accumulation of your money, and also allow you to get to that money at any time, without any restrictions or taxes to pay. The rules for these plans haven't changed, and probably never will, since so few people are even aware they can get into such a plan. You are not restricted to $7,500 per year, and you don't have to wait until age 58 to get to your money! I have helped people all over the country set up these plans. You can contribute from as little as $100 to many thousands of dollars per month.
The new proposed law changes are interesting, and will have a major impact on the retirement plans people are using today. Many of these plans will be scrapped - for now. But what will the future bring? I am only sure of one thing: it will bring change. I would suggest that before you get on that roller-coaster, you know what the ride will be like and which is best for you - not only now, but in the future. Sit back and strap yourself in good and tight, because here we go again!
Stanley Greenfield, RHU
1829 Green Heron Court
Jacksonville Beach, Florida 32250
Fax: (904) 247-1266
Click here for previous articles by Stanley Greenfield, RHU.