Managing Taxes, Social Security Levers for Taking Control of Retirement Prospects

By John Manganaro | March 15, 2017
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Lester and Roy suggested that, “like pretty much everyone in the U.S.,” the investment management teams at J.P. Morgan are closely watching the policy debates unfolding in Washington, D.C. In the retirement-focused business segments there is naturally a focus on what might occur related to taxes imposed on all the various types of retirement accounts, particularly Roth and traditional individual retirement accounts (IRAs) but also 401(k)s.

Lester went so far as to suggest Roth IRAs are perhaps the least likely to be a target for near-term tax reform, given that they only hold a fraction of the assets of traditional IRAs and 401(k) plans. Both Lester and Roy agreed that the political cost of significantly increasing taxes on retirement accounts “primarily used by individuals who need as much help as possible pursuing a basic level of financial wellness” will be steep—although perhaps not insurmountable if attempts at compromise are made.

“We believe we are more likely to see ‘traditional’ pre-tax money being forced out of tax-exempt accounts,” Roy noted, with some hesitation. “But even this is perhaps not all that likely. We know for example that lawmakers in the U.K. considered this idea of pushing people away from tax-exempt contributions more in favor of a Roth-like approach, but it really never picked up enough steam. The same thing could happen here.”

And so the pair encourage investors to start thinking deeply about how to best optimize the division of investment and savings between tax-deferred and taxable accounts. Related to this, they also encourage defined contribution (DC) plan sponsors and advisers to strongly consider offering participant support on such challenging topics as tax optimization, when/how to claim Social Security, etc.

More information about obtaining the 2017 Guide to Retirement is available here