Huh? Can that be right? The IRS wants to help me save money!? Well, sort of. The IRS seems to have a theory about taxpayers saving money: “If they don’t ever see it, then they can’t really spend it.” (Legal disclaimer: the IRS didn’t actually say these words). Tuesday, the IRS released several pieces of guidance to encourage taxpayers to save for retirement.
The IRS issued pre-approved automatic enrollment language for 401(k) plans so that plan sponsors will not have to seek IRS approval for plan amendments. Most 401(k) plans are elective retirement plans, meaning that the employee must choose to participate in them. In an effort to have more people participate, a few years ago, the IRS allowed plan sponsors to make 401(k) plan enrollment automatic upon hiring, and employees will then have to elect to not participate. The pre-approved language will remove a big hassle for plan sponsors and a lot of paperwork for the IRS. The guidance also provides for voluntary automatic contribution increases. If you don’t see it, you can’t spend it.
Another new option for taxpayers that the IRS announced is that taxpayers can now directly purchase U.S. savings bonds with their tax refunds by checking a box on the 1040 tax form. You can let the government keep your money starting in 2010. Another retirement boosting ruling will allow workers who leave their jobs with accrued vacation time to contribute the cash they would receive as payment directly to their 401(k) plans. Are we seeing the theme yet?
In all seriousness, I can see where the government is coming from. A lot of Americans spend and live to the extent their incomes will allow, without giving much thought to retirement, since it is a long way off and many have more immediate needs. With the distinct possibility that Social Security and Medicare will be out of money when many of the younger members of the workforce will be eligible to receive it, it is more important than ever to make sure that you can provide for yourself once your working days are done. 401(k) plans are great way to save for retirement particularly due to the tax deferral benefits, but employees need to be aware of where their money is going and what their options are. I probably wouldn’t recommend the savings bond option to many people. In my opinion, there are a lot better investment options with which to save money than U.S. savings bonds, and the less the government has of my money is always good in my eyes. If planning for retirement gives you a headache or a panic attack, I would recommend contacting a professional to help you sort things out and provide quality advice. These guys do a great job. I am recommending the ones in TN.