Uncle Sam wants to help you get ready to retire
Mindful that a lot of people are falling behind in financial matters — or never really got started — the federal government has been making efforts to get more Americans to Square One. Some examples:
People should not be sidelined out of basic banking services because of flaws “in a murky system.”
CFPB Director Richard Cordray
IMPROVING LOW-FEE CHECKING ACCOUNTS Recent studies have indicated that perhaps one-quarter of adults either lack standard bank accounts or don’t use them well, often incurring avoidable charges such as overdraft fees.
The Consumer Financial Protection Bureau recently took steps to improve consumers’ access to checking accounts amid concerns many people don’t have good options or are being prevented from opening accounts because of inaccurate customer-screening records.
The CFPB issued a bulletin about banks’ and credit unions’ obligation to meet accuracy guidelines when reporting negative account information to credit bureaus. And it sent a letter to 25 large retail banks urging them to offer accounts that help customers avoid overdraft charges, something that nearly half don’t.
“Consumers should not be sidelined out of the basic banking services they need because of the flaws and limitations in a murky system,” CFPB Director Richard Cordray said in a statement. “People deserve to have more options for access to lower-risk deposit accounts.”
TOUTING A NO-FRILLS RETIREMENT ACCOUNT Plenty of Americans have nothing — or very little — saved for retirement. That’s why the Treasury Department, upon direction from the White House, recently unveiled myRA accounts, which represent a training-wheels way to get started.
President Obama proposed myRA accounts in his 2014 State of the Union address. The Treasury describes them as simple, safe and affordable retirement accounts designed for people lacking such coverage at work. Basically, they are slimmed-down Roth IRAs, meaning investors don’t receive a tax deduction on contributions, but they also typically won’t face taxes on withdrawals or taxes along the way.
There are no fees or balance requirements, and the only investments are in Treasury bonds. That means money is safe from market losses but it also won’t earn much. The focus is on getting people started on a savings path. MyRA accounts can be rolled into regular Roth IRAs at any time and will transfer automatically after 30 years or when a balance hits $15,000.
For details, go to myRA.gov.
QUALIFYING FOR MATCHING FUNDS Moderate-income taxpayers may be able to fund their myRA with the Retirement Saver’s Tax Credit, a form of government matching funds worth up to $1,000 per person. But they also can use this income-tax credit to invest in other retirement vehicles.
The Saver’s Credit isn’t new but appears to be underutilized as awareness is low — only 30% of workers surveyed by Transamerica knew about it. The credit matches a portion of your retirement contributions, whether placed in an IRA, 401(k), myRA or something else.
“Depending on your adjusted gross income and tax-filing status, you can claim the credit for 50%, 20% or 10% of the first $2,000 you contribute during the year to a retirement account,” Turbo Tax said. “Therefore, the maximum credit amounts that can be claimed are $1,000, $400 or $200.” Married couples could qualify for up to $2,000.
For 2015, the smallest credits could be taken for singles earning up to $30,500 or married couples earning up to $61,000.
MAKING A LUMP-SUM MOVE If you are fortunate enough to have pension coverage at work, an important decision awaits — whether to take a lump sum when leaving your job or elect payments spread over your lifetime. Key considerations include taxes and your willingness, and ability, to manage the money if you take a lump sum. Many people probably are tempted to grab the money now. But for those concerned about outliving their money, or mismanaging it, an annuity could be the better choice.
The Consumer Financial Protection Bureau has come out with an eight-page, easy-to-read guide to help retirees and near-retirees navigate the decision. The guide can be read by searching for pensions at Consumerfinance.gov or at http://1.usa.gov/1Opa503.