Obama's retirement investment protections explained

President Obama says he wants greater protections for retirement investing.

He unveiled a proposal that would hold financial advisers handling individual to a higher standard than they currently are.

This means that financial advisers would formally have to put the best interests of their clients ahead of their own interests by recommending the best product -- even if that means taking a smaller fee for their services.

Cliff Morgan, a finance expert with Strategic Wealth helps explain some of the provisions.

1. Eliminate the special tax break for NUA

The proposal - Net unrealized appreciation, or NUA, one of the biggest tax breaks in the entire tax code for some retirement account owners, would be eliminated if this proposal were to become law. To be eligible to use the provision, which allows you to pay tax on some of your retirement savings at long-term capital gains rates, you must have appreciated stock of your employer (or former employer) inside your employer (or former employer)-sponsored retirement plan and follow certain rules. Any plan participant 50 or older by the end of this year (2015) would still be eligible for the special NUA tax break, provided they meet all the rules.

2. Limit Roth conversions to pretax dollars

The proposal - After-tax money held in your traditional IRA or employer-sponsored retirement plan would no longer be eligible for conversion to a Roth account.

3. "Harmonize" the RMD rules for Roth IRAs with the RMD rules for other retirement accounts

The proposal - To further "simplify" the RMD rules, the administration seeks to impose required minimum distributions for Roth IRAs in the same way they are imposed for other retirement accounts. In other words, this proposal would require you to take distributions from your Roth IRA once you turn 70 in the same way you would for your traditional IRA and other retirement accounts. If, however, you are already 70 at the end of this year (2015), you would be exempt from the changes that would be created by this proposal.

4. Eliminate RMDs if your total savings in tax-favored retirement accounts is $100,000 or less

The Proposal - If you have $100,000 or less across all your tax-favored retirement accounts, such as IRAs and 401(k)s, then you would be completely exempt from required minimum distributions. Defined benefit pensions paid in some form of a life annuity would be excluded from this calculation. Required minimum distributions would phase in if your total cumulative balance across all retirement accounts is between $100,000 and $110,000. Those amounts would be indexed for inflation.

5. Create a 28% maximum tax benefit for contributions to retirement accounts

The proposal - The maximum tax benefit (deduction or exclusion) you could receive for making a contribution to a retirement plan, like an IRA or 401(k), would be limited to 28%. Thus, if you are in the 28% ordinary income tax bracket or lower, you would be unaffected by this provision. However, if you are in a higher tax bracket, such as the 33%, 35%, or top 39.6% ordinary income tax bracket, you wouldn't receive a full tax deduction (exclusion) for amounts contributed or deferred into a retirement plan.

6. Establish a "cap" on retirement savings prohibiting additional contributions

The proposal - This proposal would prevent you from making any new contributions to any tax-favored retirement accounts once you exceeded an established "cap." The cap would be calculated by determining the lump-sum payment it would take to produce a joint and 100% survivor annuity of $210,000 a year, beginning when you turn 62. Currently, this would cap retirement savings at approximately $3.4 million. The cap, however, would be a soft cap, as your total tax-favored retirement savings could exceed that amount, but only by way of earnings. Adjustments to account for cost-of-living increases would also apply.