HOW WILL PRESIDENT OBAMA'S SAVINGS INITIATIVES AFFECT YOUR RETIREMENT?

by Brad Sears, CPA

President Obama recently announced plans to create several new federal initiatives which promote saving for retirement. Citing the approximately $2 trillion in retirement savings Americans have lost over the past two years as the stock market plummeted, Obama has announced planned changes intended to give employers an easier way to automatically enroll workers in retirement plans, as well as the option to contribute compensation received by employees for sick and vacation pay not used. In addition, taxpayers will also get new ways to save, and not spend, their federal tax refunds.

Here's how the planned new retirement savings options could affect your retirement plans.

Automatic Enrollment in Retirement Accounts

Treasury Secretary Timothy Geithner recently stated that nearly half of the U.S. work force has little or nothing beyond Social Security retirement benefits to last them in old age. President Obama says that half of America's work force doesn't have access to a retirement plan at work, and fewer than 10 percent of workers without work-sponsored plans have retirement accounts of their own.

The President's new proposals would allow small businesses to automatically enroll workers in 401(k) or other retirement savings plans using direct deposits. The IRS recently issued pre-approved automatic enrollment language which can be used by employers to amend their retirement plans. Plan administrators also may automatically increase the default amount saved each year by workers, and workers will also be informed about how they can opt out of the plan.

Save your sick and vacation days

Workers receiving cash payments from their employers for unused vacation and sick time would now be able to contribute these amounts into their 401(k) plans, although if your employer doesn't currently compensate you for the unused leave, they will not be required to do so.

This initiative will also allow workers, when leaving a job, to direct unused vacation and sick pay to their retirement accounts instead of taking the cash.

Saving Tax Refunds

Approximately one hundred million families currently receive federal tax refunds each year, and workers already have the option to have all or a portion of their tax refunds directly deposited into IRA accounts. Beginning in 2010, tax refunds can also be used to purchase Series I Savings Bonds simply by checking a box on your federal income tax return. These bonds will be mailed to taxpayers who choose this option in denominations of $50, $100, $200, $500, and $1,000. Generally, the bonds can not be redeemed during the first 12 months they are owned, but they will continue to accrue interest for up to 30 years, and beginning in 2010 an option will be available allowing the taxpayer to add co-owners such as children or grandchildren.

In addition, President Obama has recently introduced the American Families' Future Security Act of 2009, which proposes the following:

Provide a flat 50% match on qualified contributions to retirement accounts (up to $500 for single filers and $1,000 for married filers, with annual increases of $100 for single filers and $200 for joint filers, through 2020);
Increase the income eligibility requirement to $65,000 for joint filers, $48,750 for head of household filers, and $32,500 for single filers;
Automatically deposit matching contributions into a designated retirement account by using IRS Form 8888, Direct Deposit of Refund to More Than One Account.

Please don't hesitate to contact us if you'd like to discuss how any of the above planned initiatives applies to your personal situation.