A presidential executive order that could lead to investors keeping their money longer in tax-deferred retirement accounts? What’s not for investment advisors to like?

Especially intriguing to advisors is the language in President Trump’s new executive order calling on the Treasury Department to review its rules for required mandatory withdrawals from 401(k) plans and IRAs.

Generally, investors must start withdrawing funds from these accounts when they turn 70-and-a-half.  Allowing investors to stay invested longer also preserves the assets under management advisors manage and AUM fees they charge.

“We get a lot of clients who are dismayed because they have to start taking withdrawals at 70-and-a-half when they don’t need the money,” said Edward Snyder, founder and partner, Oaktree Financial Advisors, Carmel, Ind. “They'll take the withdrawal, pay the taxes on it and reinvest it, but the only reason they're taking it out is because they're required to. If they didn't have to take the withdrawals, they could keep the money in their IRA tax deferred and it could pass to their beneficiaries.”

The Treasury rules have not been updated since 2002, according to the White House.

Lifting mandatory retirement plan withdrawals would especially benefit Americans who are still working at age 70-and-a-half, who could then wait until they stop working and are in a lower tax benefit to start taking benefits, said Jim Oliver, the high-net-worth practice leader in Calvetti Ferguson’s San Antonio office.

“Investors who are still receiving payouts from the sale of a business and can delay withdrawals would benefit for the same reason,” Oliver said.

Any investor who could afford to self-fund retirement for several years past 70-and-a-half in order to make Roth conversions could reap both tax and estate planning benefits, the veteran advisor said.

The benefits for high-net worth investors if required minimum distributions (RMDs) are eliminated are hard to miss, said Monica Dwyer, vice president and wealth advisor, Harvest Financial Financial Advisors, West Chester, Ohio. “Often times, these clients would prefer not to get taxed either because their income is very high or they would prefer to keep this money tax deferred for the next generation.” 

But benefiting the wealthy may also quickly turn the subject of easing RMD mandates into a political battering ram for Democrats. “This will have an impact on the amount of tax revenue the federal government is able to collect, so it surprises me that Trump would be lifting this requirement in light of the tax cuts that were recently passed,” Dwyer said.

The President’s executive order also calls on the Labor Department to consider allowing small businesses to jointly offer 401(k) plans. Historically, the Department has prevented unrelated businesses such as car dealerships and consulting firms from collaborating to offer so-called open multiple employer plans because of the potential for abuse.

Open multiple employer plans, which have bipartisan support in Congress, would eliminate the mandate that businesses have a common interest in order to pool their retirement assets into a single 401(k). The change would cut expenses and conceivably help more firms offer savings plans. The order also calls on the Labor and Treasury departments to reduce administrative burdens and paperwork that stand in the way of small business retirement plan creation.

Easing regulatory roadblocks and costs would definitely encourage more entrepreneurs and small business owners to create retirement plans, said Dennis Nolte, a wealth manager with SeaCoast Bank, Oviedo, FL. “It would be fantastic to reduce cost, regulation and liability for plan sponsors of small 401ks and other qualified plans,” Nolte said.

“The last time we had any sort of legislation to encourage small business retirement plans was in 2001 and that was a reactive measure in the face of the financial meltdown,” Nolte said. “Proposing this now, during a prosperous time, is prudent and welcome.”

“The goal is to find policy ideas that will help make creating and joining a 401(k) plan a more attractive proposition for small employers,” Preston Rutledge, assistant secretary of the Employee Benefits Security Administration at the Labor Department, told reporters at a presser announcing the executive order.

Any regulatory or legal changes “that allow businesses to band together so that they can get better rates and better plans for their 401(k)s is a win,” said Dwyer. “Anything that increases competition should decrease costs and that’s a win for smaller companies when it comes to spurring plan creation.”