Personal Finance

House just voted yes to increase Social Security for some beneficiaries

Published

2 months ago

November 13, 2024

A bipartisan bill to change Social Security benefit rules for pensioners passed in the House of Representatives on Tuesday, with 327 lawmakers voting to support the measure.

Now, the proposal heads to the Senate, where the chamber’s version of the bill has 62 co-sponsors, “surpassing the majority needed to pass the bill on the U.S. Senate floor and send it to the president’s desk to be signed into law,” Reps. Abigail Spanberger, D-Virginia, and Garret Graves, R-Louisiana, co-leaders of the bill, said in a joint statement.

The proposal — called the Social Security Fairness Act — would repeal rules that reduce Social Security benefits for individuals who receive pension benefits from state or local governments.

It would eliminate the windfall elimination provision, or WEP, that reduces Social Security benefits for individuals who worked in jobs where they did not pay Social Security payroll taxes and now receive pension or disability benefits from those employers. About 3% of all Social Security beneficiaries — about 2.1 million people — were affected by the WEP as of December 2023, according to the Congressional Research Service.

The bill would also eliminate the government pension offset, or GPO, which reduces Social Security benefits for spouses, widows and widowers who also receive pension checks. As of last December, about 1% of all Social Security beneficiaries — or 745,679 individuals — were affected by the GPO, according to the Congressional Research Service.

These rules, which have been in effect for decades, reduce the incomes of certain retired police officers, teachers, firefighters and other public servants, Graves said during a Tuesday speech on the House floor.

“This has been 40 years of treating people differently, discriminating against a certain set of workers,” Graves said.

“They’re not people that are overpaid; they’re not people that are underworked,” he said.

Supporters call bill a ‘step in the right direction’

The National Committee to Preserve Social Security and Medicare said the House vote on the Social Security Fairness Act is a “step in the right direction” and a “bipartisan victory for public sector employees and their families.”

“We have long advocated for the repeal of the WEP and GPO provisions, though we would have preferred that Congress take up the more comprehensive improvements in Rep. John Larson’s Social Security 2100 Act,” Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, said in a statement.

Larson’s proposal, which has 188 House co-sponsors, would also repeal the WEP and GPO, while also implementing other temporary benefit increases. To help pay for those changes, it would require people with more than $400,000 in income to pay more Social Security payroll taxes.

Social Security is a key issue for voters, survey finds: Here’s how to maximize benefits

On Tuesday, Larson voted against the Social Security Fairness Act, as well as another bill, the Equal Treatment of Public Servants Act. The latter bill would use a new formula for Social Security retirement and disability benefits for pensioners rather than eliminate the WEP. It would not change the GPO.

The bill, which was proposed by Rep. Jodey Arrington, R-Texas, failed when it was brought up for a vote.

“I could not vote for the bills on the floor tonight because they are not paid for and therefore put Americans’ hard-earned benefits at risk,” Larson said in a statement. “It would hurt most deeply the five million of our fellow Americans who receive below poverty checks, and almost half of all Social Security recipients who rely on their earned benefits for the majority of their income.”

Critics say the bill will weaken Social Security

The Social Security Fairness Act would add an estimated $196 billion to deficits over the next decade, the Congressional Budget Office has estimated. It would also move Social Security’s trust fund depletion dates closer by an estimated six months, according to the Committee for a Responsible Federal Budget.

“The long-term solvency of Social Security is an issue that Congress must address,” Spanberger said on the House floor on Tuesday.

“But that is a separate issue from allowing Americans who did their part, who contributed their earnings, for them to retire with dignity,” she said.

However, critics say Social Security’s funding woes should be a priority for Congress now. The program’s actuaries project the trust fund used to pay retirement benefits may be depleted in 2033, at which point 79% of benefits will be payable.

“This is not the right policy,” said Romina Boccia, director of budget and entitlement policy at the Cato Institute. “It’s what special interests were pushing, and politicians are responsive to their demands.”

Though the alternative bill proposed by Arrington would not address the GPO, it would provide a “fairer formula” for the WEP, Boccia said. However, broader changes are needed to shore up the program’s finances.

“We should reform Social Security so that it provides basic income security to the most vulnerable Americans in old age without adding to the debt or tax burden that younger workers face,” Boccia said.

Personal Finance

Now is an ‘ideal time’ to reassess your retirement savings, expert says

Published

12 hours ago

January 22, 2025

Business Finance News

Hispanolistic | E+ | Getty Images

When it comes to retirement savings, surveys often point to a big magic number you will need to have set aside to live well.

Yet retirement experts say to focus on another number — your personal savings rate — to make sure you achieve your retirement savings goals.

“Early in the year is an ideal time to reassess your retirement contributions and overall savings strategy because you can take advantage of any employer matches, adjust your monthly budget accordingly and stay ahead of potential market shifts,” said Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth, a wealth management firm based in New York City.

What’s more, increasing your retirement savings now gives your money more time to compound — earning interest on both your contributions and previously earned interest. That can “significantly impact your nest egg over the long term,” said Boneparth, who is also a member of the CNBC FA Council.

Boost your 401(k) deferral rate

If you have a 401(k) plan through your employer, now is a great time to look at your contribution rate, according to Mike Shamrell, vice president of thought leadership at Fidelity.

Most importantly, see how your savings rate corresponds to what your employer offers in terms of a company match, he said.

“It’s the closest thing a lot of people get to free money,” Shamrell said.

Oftentimes, companies have a match formula. If you’re not clear on how much you need to contribute to get the full match, contact your human resources department or 401(k) provider, Shamrell said.

Fidelity recommends saving at least 15% of your pre-tax income annually, including your contributions and money from your employer.

If you’re not quite there — or you want to save even more — even just a 1% increase in your deferral rate can make a big difference to your retirement savings over time, Shamrell said.

“It may not have the significant impact on your take-home pay that you that you may be envisioning,” Shamrell said.

Fund your IRA for 2025 — and 2024

Retirement savers also have a window of opportunity to fund individual retirement accounts for both this year and last year.

To count for 2024, contributions can be made up to April 15. (You must designate the deposit for tax year 2024.) For that year, individuals can contribute $7,000, or $8,000 if they are age 50 and over.

The same contribution limits apply for 2025, though savers have additional time — up to April 15, 2026 — to make those contributions.

Savers may be able to deduct those IRA contributions, depending on their income.

Revisit your investment allocations

In 2024, the average 401(k) balance grew about 11%, thanks to soaring stock markets, according to Shamrell.

Heading into the rest of 2025, now is a great time to revisit your personal asset allocations.

“Make sure your allocation didn’t drift too far into equities and that you don’t have more exposure to equities than you might realize,” Shamrell said.

If you’re worried about picking the wrong investment, you can instead opt for target date, asset allocation or balanced funds, which help decide how your funds are allotted for you, according to Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

Also be sure to consider to your risk capacity — the amount of risk you can afford — as well as risk tolerance — the amount of risk you’re willing to take, said Cheng, who is also a member of the CNBC FA Council.

Identifying those personal limits ahead of time can help you stay the course during market turbulence, she said. Investors who bail during the market’s worst days may miss the best days, which often closely follow, research finds.

If you’ve had any major recent life events — gotten married, bought a house or had a baby, for example — you may also want to check that your allocations still correspond to your long-term plans, Shamrell said.

Personal Finance

There’s a big inherited IRA change in 2025. How to avoid a penalty

Published

13 hours ago

January 22, 2025

Business Finance News

Greg Hinsdale | The Image Bank | Getty Images

Inheriting an individual retirement account is a windfall for many investors.

However, a lesser-known change for 2025 could trigger a costly surprise penalty, financial experts say.

Starting in 2025, certain heirs with inherited IRAs must take yearly required withdrawals while emptying accounts over 10 years, known as the “10-year rule.”

“The big change [for 2025] is the IRS is enforcing penalties for missed required distributions,” said certified financial planner Judson Meinhart, director of financial planning at Modera Wealth Management in Winston-Salem, North Carolina.

There’s a 25% penalty for missing a required minimum distribution, or RMD, from an inherited IRA. But it’s possible to reduce the fee if your RMD is “timely corrected” within two years, according to the IRS.

Here are the key things to know about the inherited IRA change.

Which heirs could face a penalty

Before the Secure Act of 2019, heirs could withdraw funds from inherited IRAs over their lifetime, which helped reduce yearly income taxes.

Since 2020, certain inherited accounts have been subject to the “10-year rule,” meaning heirs must deplete inherited IRAs by the 10th year after the original account owner’s death.

After years of waived penalties for missed RMDs from inherited IRAs, the IRS in July finalized guidance. Starting in 2025, certain beneficiaries must take yearly withdrawals during the 10-year window or they’ll face a penalty for missed RMDs.

The rule applies to heirs who are not a spouse, minor child, disabled, chronically ill or certain trusts — and the yearly withdrawals apply if the original IRA owner had reached their RMD age before death.

One group who could be impacted are adult children who inherited IRAs from their parents, according to CFP Edward Jastrem, chief planning officer at Heritage Financial Services in Westwood, Massachusetts.

But the rules have become a “spiderweb mess of decision-making,” he said.

Avoid the ’10-year tax squeeze’

For 2025, there’s a enforced penalty for missed RMDs. But heirs also need to manage withdrawals to avoid the “10-year tax squeeze,” said Jastrem.

Over the past few years, some heirs have skipped yearly withdrawals from inherited IRAs, which could mean larger required withdrawals before the 10-year window closes, he said.

For example, boosting adjusted gross income can impact things like Medicare Part B and Part D premiums, eligibility for the premium tax credit for Marketplace health insurance and more.

Of course, timing inherited IRA withdrawals depends on your complete tax situation, including multi-year projections of your adjusted gross income, Meinhart said.

Personal Finance

‘Era of the billionaire.’ Here’s why wealth accumulation is accelerating

Published

15 hours ago

January 22, 2025

Business Finance News

President-elect Trump's cabinet to have more billionaires than any in history

The rich are getting richer.

The combined wealth of the world’s most wealthy rose to $15 trillion from $13 trillion in just 12 months, according to Oxfam’s latest annual inequality report — notching the second largest annual increase in billionaire wealth since the global charity began tracking this data.

Last year alone, roughly 204 new billionaires were minted, bringing the total number of billionaires to 2,769, up from 2,565 in 2023, the global charity found.

“Not only has the rate of billionaire wealth accumulation accelerated — by three times — but so too has their power,” Oxfam International’s Executive Director Amitabh Behar said in a statement Sunday.

“We’ve reached a new era now, we are in the era of the billionaire,” said Jenny Ricks, general secretary of the human rights group Fight Inequality Alliance. “The challenge now is turning this around and making this the era of the 99%.”

Despite the fact that America ranks first as the richest nation in the world in terms of gross domestic product, 36.8 million Americans live in poverty, accounting for 11.1% of the total population, according to the latest report from the U.S. Census Bureau.

“We need government serving people’s real needs and rights,” Ricks said, with increased funding for education and healthcare, among other social services.

‘Tax us, the super rich’

After Oxfam’s report was released, some of the world’s wealthiest people called on elected representatives of the world’s leading economies to introduce higher taxes on the very richest in society.

In an open letter to political leaders attending the annual World Economic Forum in Davos, Switzerland, more than 370 billionaires and millionaires said that they wanted to “tackle the corrosive impact of extreme wealth.”

To that end, “start with the simplest solution: tax us, the super rich,” the letter said.

36% of billionaire wealth is inherited

Oxfam found that 36% of billionaire wealth is now inherited. Much of that wealth will also get handed down. A separate report by UBS found that baby boomer billionaires’ heirs stand to inherit an estimated $6.3 trillion over the next 15 years.

“As the great wealth transition gains momentum … we expect the proportion of multigenerational billionaires to increase,” the report said.

According to Oxfam’s analysis, half of the world’s billionaires live in countries with no inheritance tax for direct descendants.

In the U.S., there is a federal estate tax up to 40%, depending on the amount of the estate over the current exclusion limit.

In 2025, the basic exclusion amount rose to $13.99 million per person, up from $13.61 million in 2024.

Meanwhile, President Donald Trump has vowed to fully extend the trillions in tax breaks he enacted via the Tax Cuts and Jobs Act in 2017, which also doubled the estate and gift tax exemption.

After 2025, the higher estate and gift tax exemption will sunset without action from Congress. If the provision expires, the exclusion will revert to 2017 levels, adjusted for inflation.

Some Democrats have pushed back on TCJA extensions, noting that they disproportionately benefit the wealthy, rather than middle-class families.

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