Secure Act

With a Happy New Year come new tax laws… Well, in 2020 they did!

You have probably seen the news that the SECURE Act (which stands for Setting Every Community Up for Retirement Enhancement) was signed into law on December 20, 2019. The goal of the new law is to take steps towards solving the retirement crisis in the United States.

Some of the new law’s provisions may affect your retirement plan.

Here is what’s inside.

No more age limit for IRA contributions.

Under the old rules, any contributions to Individual Retirement Accounts (IRAs) were prohibited beyond age 70 ½. The new law removes that limitation. Under the SECURE Act, individuals of any age can contribute to IRA accounts, as long as they continue to receive “compensation” (earned income from wages, salary, or self-employment).

Bottom line: This is good news for those who want to work and contribute to retirement savings accounts.

Required Minimum Distributions delayed until age 72.

Required Minimum Distributions (or RMDs for short) is the amount of money that must be withdrawn from traditional, SEP, and SIMPLE IRA accounts when you reach a certain age. The old law placed that age at 70 ½, which made it confusing to understand and apply. The SECURE Act delays the start of RMDs until age 72.

Important note: This change only applies to individuals who turn 70 ½ in 2020 or later. So, if you turned 70 ½ on December 31, 2019, you will have to follow the old rules.

Bottom line: If you are already withdrawing more than the required minimum amount from your IRA, the new law likely won’t affect you. If you would prefer to delay the start of RMDs and qualify under the age rules, then the new law may create some tax planning opportunities for you.

No more “stretch IRA” (with a few exceptions)

Under the old rules, the non-spousal beneficiaries of an IRA could draw down the account (and pay related taxes) over their lifetime. This was known as a “stretch IRA”. Under the new law, the stretch IRA is gone. Non-spousal beneficiaries of an IRA must now draw down the account within 10 years of the death of the original account holder.

This rule comes with a few exceptions. If the beneficiary is disabled, chronically ill, or no more than 10 years younger than the original IRA owner, then lifetime distributions are still allowed. If the beneficiary is a minor, the 10-year rule doesn’t kick in until the child reaches 21 years old.

Bottom line: Check your listed beneficiaries, and talk to us about a Plan B for your IRA.

Greater access to retirement savings plans for part-time workers

The old rules gave part-time employees limited access to employer-sponsored retirement savings accounts. Under the new law, more part-time workers may become eligible to participate in retirement savings plans. This applies to employees who either work 1,000+ hours during one year, or have 3 consecutive years with 500 hours of service.

One notable exception to this rule: it does not apply to employees who are a part of a collective bargaining agreement.

Bottom line: If you are a part-time employee, you may be eligible to participate in a retirement plan at work.

What does all of this mean for your retirement?

The answer is, as always, “It depends”. There are some things you may consider doing on your own (like checking beneficiaries on your Employee Sponsored Retirement Account and inquiring with your employer about your eligibility for new benefits).

If you have any questions about how the new SECURE Act will affect your retirement, give us a call.

Happy New Year,
Eric Nelson

Retirement planning is complicated

Retirement planning is complicated. I’m sure you already knew that.  Your security in retirement depends on a lot of moving parts. And you have to make predictions on how those moving parts will behave in the future. For example:

  • How much you’ll spend
  • How much income you’ll receive
  • How much your portfolio will grow
  • Your health status
  • Your longevity

…There’s no way to know with 100% certainty what those answers will be five, 10, or 20 years down the road.  That’s part of what makes planning for retirement so complex.

Also, there’s dozens of retirement tools to choose from.  Learning how you can maximize these tools can be overwhelming.  Tools such as:

  • 401K
  • 403 (b) 
  • IRA
  • Roths
  • Social Security
  • Pensions
  • Medicare 
  • And on and on and on…

With proper planning, you can make reasonable predictions to prepare for possible outcomes. And you can increase the chances that your plans will produce the ideal retirement.  But you have to know the best practices for building a solid plan.

The best way to get started is to maximize each tool in your retirement arsenal.

Here’s a few questions to see if you’re getting the most out of your retirement planning: 

Are you…

  • maximizing your social security benefits?
  • optimizing your investments for your situation?
  • using annuities to their full potential?
  • insured with adequate coverage? 
  • using a realistic plan for taking income from your portfolio?
  • minimizing taxes?

These are just a few considerations that need to be addressed.  There’s more, but you get the idea.

Often it’s best to tackle one area at a time (while keeping the big picture in mind). 

I know it’s easy to get overwhelmed.  There’s so much to consider… many people just throw up their hands and hope for the best.  That’s not a strategy that I recommend. It doesn’t usually turn out well.

Moving and Retirement

Moving and Retirement

“Should I stay or should I go?”

-The Clash

Retirement is a daunting thought for some. It is also an exciting time of your life. Now that retirement is here, you may be thinking, should we sell our home and move out of the area or stay where we are comfortable. There are two different decisions that should be considered when relocating during retirement.

The first decision is an emotional one, should I leave my friends, family, and memories behind. If your friends have also started retiring, many may also move away to warmer or more tax friendly states. Your kids may have relocated for work. So, for many, moving to a warmer more tax friendly environment is welcomed. Once you’ve decided you are able to move on, it’s all about the numbers.

It is also important you find a place you enjoy and feel comfortable. The quantitative decision to make is whether it is the right financial decision. When the paychecks stop, every penny seems to matter a little bit more. So, while you were working, paying $10,000 per year in taxes wasn’t the end of the world. Now that your savings will be providing the lion share of your income, you may want to move to a state where the property taxes are less of a burden.

Recently, one of my clients sold their home in New Jersey. They had been looking at properties in Florida where some of their friends had moved. Not only will their taxes be 1/3 of what they were paying. My clients found a beautiful home on a golf course where all they need to do is close the door behind them. The home also has a great layout if mobility ever became an issue for them. This will save them over $2,000 per month and allow them to spend more of their resources on the things they love to do.

Relocating is not for everyone. Family and friends are important. Many of my clients retire to spend more time with their children, grandchildren, and friends. For some people looking to retire, relocating can help make your retirement dreams a reality.