Whether or not you like 401(k) plans, most future retirees will rely on them for a substantial amount of their retirement income. Yet many people have seen the 401(k)-fueled portion of that income shrink with the recent poor market performance. Some are even demanding dramatic law changes in an effort to help safeguard retirees' financial security.

So is a 401(k) overhaul really on the horizon? There's been talk in Congress, anyway, fueled by industry academics, about abolishing business owner and employee tax breaks for 401(k) plan contributions and earnings, and replacing this current system with a form of government-subsidized, mandated savings accounts with tax credits. It is estimated that such a program would eliminate nearly $80 billion in annual tax breaks for 401(k) participants. While no bills have been formally introduced in Congress to support this type of dramatic change, we may yet see talk about radical schemes like these proliferate over the next few years on Capitol Hill. Some believe drastic times call for drastic measures.

Drastic or not, virtually everyone agrees that at least some change is needed in the 401(k) realm. Let's play a game of "What if?" Suppose employees lose their 401(k) tax deductions. Now let's also assume that taxes will rise for business owners and "high income" earners (which is almost inevitable). Here we have an entirely new financial landscape that will require advisors to acquire new skills and investment strategies. To be prepared for any potential changes, it is critical that you understand where your clients stand today.

Help Your Clients Map Their Retirement DNA
Consider that each of us has a distinct "retirement DNA" that develops with us throughout our adult lives as we move from employer to employer during our careers. Take a teacher, for example, who will likely use various school districts' 403(b) plans and vendors over the years, and maybe also different pension programs and perhaps a 457(b) or 457(f) plan. If a person works in the small business environment, she will likely accumulate simplified employee pension (SEP) and/or savings incentive match plans for employees (SIMPLE) plans. If a person works for large corporations, she will almost certainly gather 401(k)s and maybe legacy pension plans (perhaps frozen ones). And if a person works in professional practices (in the medical or legal fields, for example), the strands of her retirement DNA may consist of money purchase and/or profit-sharing plans.

Understanding the nuances of the ERISA space (qualified retirement plans and IRAs) is essential if you are going to have an understanding of your client's situation. And like a personal coach, you can play a pivotal role in helping your clients be proactive and make good choices along the way. Unfortunately, there are no guarantees for our retirement savings health, just as there aren't for our personal health. But you can surely improve your clients' odds of success if you understand what they have to work with.

Drawing A Map
Having a general knowledge of the types of retirement savings arrangements and design features is a good start-but every plan has its own separate blueprint and nuances. For example, consider two employees at Verizon. Though they both work for the same company, each might have a very different situation based on his job function, when he joined and at what level he works (whether it is in management or labor). Now contrast a Verizon employee with a school teacher in New Jersey and the differences are geometrically greater. Even though they may have similar "plan types" (in this case, both have a defined benefit pension plan and a salary deferral defined contribution plan), the specific experiences are very different. The teacher may have multiple 403(b) vendors to choose from while the Verizon employee might enjoy a well-structured 401(k) plan with a company match in Verizon stock. So, again, it is incumbent on you to understand your clients' unique problems and the choices they have available. You may find the following checklist of questions useful when starting the conversation. Ask them to do these things:
List the IRAs that they own.
Identify the employer-sponsored retirement plans in which they currently participate.
Identify the employer-sponsored retirement plans in which they formerly participated.
List the amount of investment in employer stock within their qualified retirement plans, if any.
Identify any nonqualified retirement annuities they may have.
List their anticipated Social Security benefits.
List the retirement accounts on which they are named beneficiaries.
Find out on what date they last completed a beneficiary audit of their retirement savings arrangements?
Identify what they feel are the major risks they face to their retirement income.

As part of our work at the Retirement Learning Center, we offer ERISA consultants to help advisors across the country approach cases involving individual investors and small and midsize business owners. With a retirement plan audit program, for example, we can help advisors identify potential plan deficiencies for business owners and modifications that may help them better achieve their personal objectives and corporate goals-for instance, if they want to add a Roth 401(k) feature or a new comparability allocation formula.

Help Clients Create A Road To Recovery
Once you have understood your clients' particular problems, you can help them develop personal investment fitness programs that will put them on the road to recovery and financial security in retirement. Considering the uncertainty of the economic times and the decisions Congress may make about tax brackets and deductions, one of the easiest ways to help clients achieve future retirement income success is to secure a source of tax-free income. Having a pool of nontaxable income in retirement creates flexibility.

When we think about these sources, one word likely comes to mind: "Roth." While no up-front deduction is allowed on Roth contributions, Roth distributions and their earnings are tax-free after a five-year participation period and after the investor has reached age 59 and a half. Many (mistakenly) believe that a Roth is out of their reach because of income thresholds. But in 2010, everyone will have at least one Roth option available to them.

Roth Options
1. Contributing to a Roth IRA
To be eligible to contribute to a Roth IRA (the maximum annual amount is $5,000 for those under age 50 and $6,000 for those age 50 and over), an individual must have earned income, but not too much. His or her modified adjusted gross income (MAGI) must fall below a specified range. There is no age restriction for making contributions, however.
According to Figure 1, if someone is married, for example, and filing a joint income tax return, and if her MAGI exceeds $176,000 for 2009, she is ineligible to contribute to a Roth IRA.

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