Data and Research September 12, 2016

Savers More Likely to Achieve Long-Term Targets

A research report from TD Ameritrade indicates that a commitment to a regular long-term savings plan is well worth the effort. 
Reported by

Boomers are saving twice as much for retirement as Millennials, with a median of $300 vs. $150 per month and despite the fact that Millennials are saving for other things, more than two-thirds (72%) have already started saving for retirement. This is according to the TD Ameritrade Millennials and Money Survey of 2,100 U.S. adults identified as either savers or spenders. 

“While we’ve learned that the majority of Americans have positive savings habits, we can’t ignore the fact that a significant number of non-savers find long-term saving to be difficult, if not impossible,” Dara Luber, a retirement and long-term investing professional at TD Ameritrade in New York. For example:

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

  • Of those who aren’t saving, two-thirds (67%) of Millennials and more than half (56%) of Boomers say they can’t afford to save
  • More than a quarter (26%) of non-retired Boomers expect that they will never fully retire, along with 23% of Millennials
  • 14 percent of Millennial spenders say they are spenders because they have so much debt, they don’t care about saving anymore
  • Millennials hold more non-mortgage debt at $15,000, than Boomers do at $10,000
  • Four in 10 (39%) of Millennials are paying off student loans by making median monthly payments of $200

 According to the research, 82% of Millennials are saving for something other than retirement, such as vacation or an emergency fund while 80% of Boomers, who are nearing a time when they may no longer work, are saving primarily for retirement.

“Everyone needs to start somewhere, and a commitment to a regular long-term savings plan – no matter how small – is well worth the effort,” Luber said. “If your end goal seems daunting, break it down into smaller goals and celebrate milestones along the way. Use these small happy moments as motivation toward your big money goals like retirement.”

TD Ameritrade’s 2016 Goal Planning Survey shows that people who have a savings plan with specific goals are more likely to make progress toward fulfilling their savings or investing targets. 

One in four Millennials are saving for a down-payment on a home, almost one in five (18%) are saving for education and one in 10 for a wedding/civil ceremony. 

Compliance September 12, 2016

‘Mega Roth IRAs’ Target of Senate Democrat’s RISE Act

While some Roth IRAs hold tens of millions of dollars, as of 2013 the median account value was $25,000. 

Reported by

Senate Finance Committee Ranking Member Ron Wyden, D-Oregon, released a “discussion draft” of the Retirement Improvements and Savings Enhancements Act (RISE Act)—aimed at boosting savings while combatting what he describes as critical imbalances in retirement-related tax incentives.

According to Wyden, the RISE Act as proposed would help more working families and recent college graduates save for retirement, while “cracking down on unfair strategies used by the privileged to rake in subsidies and dodge tax bills with so-called mega Roth IRAs [individual retirement accounts].”

Get more!  Sign up for PLANSPONSOR newsletters.

Explaining his motivation for introducing the RISE Act, Wyden says the existing tax incentives for retirement savings, which he suggests will add up to more than $1 trillion over the next five years, represents the second-largest subsidy in the U.S. tax code. Yet, the majority of Americans still clearly struggle to save amounts at all sufficient to meet retirement spending projects, he observes. Even on health care spending in retirement alone, expenses are anticipated to far outstrip what most Americans have save or expect to be able to save.

“According to the National Retirement Risk Index, the median IRA account contained only slightly more than $25,000 as of 2013,” Wyden says. “An estimated 60% of all households had nothing saved in an IRA or 401(k). Meanwhile, a recent GAO report found that between 2,000 and 5,000 taxpayers had balances in IRA accounts, including Roth IRAs, of more than $5 million in 2011. The estimated value of those taxpayer-subsidized Roth IRAs totaled between $8 billion and $13 billion.”

This is the “Mega Roth IRA” problem, Wyden says, highlight that the creation of these accounts is often the result of an account holder “seeding an account with specially-acquired assets that appear to be worth very little before exploding in value.” The RISE Act draft released would, according to Wyden, “prohibit further contributions to a Roth IRA if its total value exceeds $5 million.”

NEXT: Why RISE matters today 

It should be stated that both Democrats and Republicans in Congress have struggled to deeply address defined contribution retirement planning issues—with the Pension Protection Act of 2006 (PPA) being lawmakers’ latest and greatest contribution to the space, apart from minor tweaks and adjustments occasionally folded into omnibus, must-pass legislation. But even so, Wyden appears optimistic about the RISA Act because, as he puts it, “still far too many Americans struggle to set money aside after they cover the basics.”

“Tax incentives for savings ought to be available to more working families and more generous to the middle class,” he argues. “It’s time to face the fact that our tax code needs a dose of fairness when it comes to retirement savings, and that starts with cracking down on massive Roth IRA accounts built on assets from sweetheart, inside deals. Tax incentives for retirement savings are designed to help people build a nest egg, not a golden egg.”

In addition to cracking down on “mega Roth IRAs,” the draft proposal would:

  • Allow employers to make “matching” contributions to a 401(k) retirement plan while their employees make student loan repayments. Under this proposal, recent graduates who cannot afford to save money above their student loan repayments would no longer have to forego the employer match.
  • Make the “Saver’s Credit” refundable so that it is available to Americans with no income tax liability, simplify its structure, require that the credit amount be contributed directly to a tax-favored retirement plan and increase its income cap. 
  • Eliminate Roth conversions for both IRAs and employer-sponsored plans to prevent tax gaming and close the “back door” around income limits.
  • Eliminate “stretch IRAs” to prevent taxpayer-subsidized retirement accounts from being used as estate planning tax loopholes.
  • Gradually increase the age at which retirement plan participants are required to begin taking distributions from their accounts. The “required minimum distribution” age of 70.5 years has remained unchanged since the early 1960s. In addition, the draft provides that participants who reach the required age with balances in their retirement plans of less than $150,000 will not be required to begin taking distributions.

The RISE Act discussion draft is a detailed legislative proposal, but not final. It is being circulated to stakeholders, members of Congress, federal officials and others for review and comment.

The responses will be reviewed and, if appropriate, incorporated into legislation, Wyden says, asking industry practitioners to submit comments on the proposal to Retirement_Savings@finance.senate.gov.

«