What’s Ahead for the Feds in 2015?
Cliched Investment Strategies
In almost every family, there’s a relative who tries to dominate the dinner conversation with cliched investment strategies. Often, these so-called “strategies” just create more confusion, offer few specifics, and fail to provide a plan of action.
When you get right down to it, you just can’t do much with advice like, “Invest in growth vehicles when you’re young,” “Don’t forget diversification,” “Buy term and invest the difference,” and “I made a fortune investing in (insert fast-growing stock here).”
The truth is, there’s no one-size-fits-all solution when it comes to investment strategies. Not all young people fit into the mold of growth investments, and not all people over 60 need to reallocate if they are healthy and have no intention of retiring until the Good Lord makes them.
When it comes to investing, there’s a lot more to consider than the traditional 60/40 investment portfolio.
So What’s Ahead for the Feds in 2015?
With so many financial products on the market, there are volumes of laws and regulations created to protect consumers. And just like our tax code, their usefulness may become outdated over time, requiring modification or replacement.
In a recent Forbes article, Jamie Hopkins made a list of the 5 Biggest Retirement Planning Changes for 2015. We’ve highlighted the three changes that we think could have the biggest impact on Federal Employees.
Due to a 2014 Supreme Court decision, assets in an inherited IRA account are no longer considered retirement assets for the purpose of exemption under federal bankruptcy law.
This could be a stand-alone ruling, but due to the frequent overlap between federal and state credit protection laws, this could cause inherited IRA’s to lose their protected status in other collection situations as well.
Asset protection is an important part of financial planning, and you should always be aware of the legal settings in which your assets are protected.
Deferred Income Annuities in Retirement Accounts
Due to modern medicine, most of us can expect to live decades into retirement. However, many people won’t receive a monthly pension check.
More and more often, we are forced to depend on our savings and investments for retirement income. Without a guaranteed lifetime pension, the fear of running out of money is always looming overhead.
In hopes of preventing people from being overly frugal during retirement, the government has decided to allow the purchase of Qualified Longevity Annuity Contracts (QLACs) in qualified retirement accounts like IRAs or 401(k)s.
QLACs are deferred-income annuities that guarantee a lifetime income starting as late as age 85. If you die before the payout begins, the premiums you paid will be returned to your account. The size of the contract is limited, the lesser of $125,000 (with COLAs) or 25% of your retirement account.
The government will also allow the purchase of target date funds within retirement accounts, with deferred income annuities as the default investment option. Target date funds are essentially investments that rebalance your portfolio as you get closer to retirement.
Hopefully, this will serve to reduce the general fear of depleted income in retirement, but only time will tell if these policy changes are really a game-changer for those living without lifetime pensions.
An Eye on IRA Rollovers
The U.S. Tax Court has halted unlimited IRA rollovers. This is due to a 2014 court case in which a taxpayer was using the IRA rollover process to borrow from the IRA by overlapping rollovers from multiple accounts.
The court deliberated many issues as a result, but the biggest outcome of the ruling was the judgement that taxpayers are only allowed one IRA rollover per 12-month period (not calendar year). This decision caught everyone off guard, including the IRS, who decided they would only start enforcing this decision in 2015. (Trustee to trustee transfers of retirement assets are not affected by this decision.)
The Law is Always Changing
With such a broad scope of issues being addressed in the field of finance, regular changes in the law are bound to have an effect on financial planning strategies. Some changes represent opportunities to fill a gap in your retirement plan, while others may bring fair warning that rulings working in your favor may soon be overturned by the courts.
Whatever the case may be, it’s best to keep a sharp ear out for changes like these and contact a certified financial planner as well.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.