Money in the Middle

Sandwich Generation Talking About Money Up, Down and Across Generations

A Few Small Ways to Help Retirement Savings

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Over the weekend President Obama announced several new initiatives to help families save more. Most of them are focused on changes for small employers to encourage retirement savings by their employees.

 While no “silver bullet” for retirement savings problems we face, if they help a few more people save for retirement, that’s a good thing.  I’m particularly glad to see an emphasis on helping people understand what to do with retirement balances when they leave a job.  This can be really important to younger generations who will likely have many jobs and also more responsibility for their own retirement.

 Here are the changes

 *Small employers would be able to adopt auto-enrollment into 401(k) plans.  While the employee could opt out, auto enrollment usually boosts enrollment from about 70% to 90%. Until now, this is a tactic reserved mostly for large employers.

 * Auto-increase features in 401(k) plans would be encouraged.  So if you got a raise or just wanted to automatically increase your retirement plan contribution each year by a set amount it would be easy to put it in place.  While you could always reverse the decision, we know that putting that kind of decision on auto-pilot may help many of us save more.

 * Tax refunds – Your tax refund can already be deposited directly into an IRA or to another savings vehicle.  In 2010, you’ll have the additional option of purchasing savings bonds with your tax refund.

 *Unused leave – If you leave your job, unused vacation or sick leave could be distributed directly into your 401(k).  It doesn’t require employers to pay for leave if they don’t now; it just provides a new way to distribute the cash.

 *Making it easier to understand rollover options – This can be helpful to anyone of any age who leaves a job – but especially younger workers who might not understand the important of keeping that money in a tax-deferred account.  The new rules provide an easy to understand statement that can be given to a departing employee so that they understand how to roll over plan balances, the key decisions and tax consequences. 

Small changes, but every step that helps us save a bit more toward retirement – at any age – is a good thing.

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Written by Laura Rossman

September 8, 2009 at 3:20 pm

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