The government passed a year-end spending bill in December, and it included one piece of legislation that could have a big impact on retirees. It’s called the SECURE Act. The bill’s name is an acronym for Setting Every Community Up for Retirement Enhancement.
The legislation is aimed at helping Americans save more for retirement. While many of the changes will certainly be helpful, they may also require you to revisit your retirement strategy. The SECURE Act affects many different areas, from your 401(k) plan to your IRA to even how you take withdrawals in the later stages of retirement.
Below are some of the biggest changes in the SECURE Act:
Elimination of” Stretch” IRA
The biggest change in the SECURE Act may not impact you but rather your IRA beneficiaries. The SECURE Act eliminates the ability to “stretch” an IRA, which was a strategy commonly used by non-spousal beneficiaries to reduce their tax burden and continue to grow the account.
Under a stretch IRA concept, your non-spousal beneficiary, like a grown child for example, could simply withdraw your RMDs on annual basis from the IRA after you pass away. Because they are taking the minimum amount from the IRA, they reduce their annual tax obligation. They also leave assets in the IRA to continue growing on a tax-deferred basis.
The stretch IRA is no longer an option, however. Under the SECURE Act, all non-spousal beneficiaries must take the full IRA balance within 10 years. The only exceptions are minor children and handicapped individuals. If you plan on leaving your IRA to someone other than a spouse, you may want to review their options.
Most qualified accounts like IRAs and 401(k) plans have something called required minimum distributions, or RMDs. These are withdrawals that you are required to take each year once you hit a certain age.
Traditionally, RMDs have started at age 70½. However, the SECURE Act pushes the RMD start age back to 72. That means you’ll have eighteen additional months of tax-deferred growth in your 401(k) or IRA before you have to start taking taxable withdrawals.1
Traditional IRA Contributions
RMDs aren’t the only reason why 70½ has historically been an important age. That’s also the age at which point you could no longer make contributions to a traditional IRA. Until now.
The SECURE Act eliminates the age limit on traditional IRA contributions. That means you can continue making contributions well past 70½. That could be especially helpful if you plan on working in retirement and want to continue to bolster your savings.1
401(k) Plans for Part-Time Employees and Small Businesses
The SECURE Act has also made 401(k) plans more accessible for part-time employees and employees at small businesses. In the past, 401(k) plans were usually reserved for full-time employees. However, under the SECURE Act, companies are required to offer 401(k) eligibility to any employee who works 1,000 hours in one year or 500 hours in three consecutive years.1
It’s also been difficult for many small businesses to offer 401(k) plans. These plans often have high startup and administrative costs that can be burdensome for small businesses with a tight budget.
The SECURE Act aims to resolve that problem. The new law offers up to $5,000 in tax credits to offset 401(k) plan startup costs for small businesses. It also allows small businesses to pool together to offer 401(k) plans to their employees.
401(k) Plan Income Strategies
The SECURE Act also focuses on how 401(k) plans can generate income for participants. Plans must now deliver “lifetime income disclosure statements” each year. This document will show you exactly how much income your plan could generate for life if you used the balance to purchase an annuity.
The law has also made it easier for 401(k) plan participants to access annuities with guaranteed lifetime income features. The SECURE Act eliminated some regulatory issues that had prevented annuities from being common strategy options in 401(k) plans. With those issues resolved, participants can now use their 401(k) funds to create guaranteed lifetime income through the use of an annuity.
What Should I Do?
These are some of the biggest changes to retirement plans in decades and it would be wise to re-evaluate your retirement plan. By meeting with a financial professional, we can help you evaluate your current plan and how you may want to adjust based on these recent changes. There are certain things you may want to look at differently, including some sophisticated tax planning opportunities, that only a professional can truly help you understand.
Ready to review your retirement strategy to see how it is impacted by the SECURE Act? Let’s talk about it. Contact us at 888-579-0429 today so we can help you analyze your current plan and develop a winning strategy. Don’t wait, the sooner we can help you evaluate your needs, the sooner you can feel confident about the plan you have in place. Let’s connect soon and start the conversation!
Licensed Insurance Professional. We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
19636 - 2020/1/13
Do you have your crystal ball ready? It’s the beginning of a new year, which means it’s time for everyone to make predictions about what’s in store over the next 12 months. Clearly, it’s impossible to predict the future. However, that doesn’t stop analysts and so-called experts from making their best guess.
As you can imagine, the economic predictions for 2020 are all over the map. Below is a sampling:
That’s just a small selection of “expert” predictions. As you can see, they’re all over the map. What do you do with such conflicting information? How do you prepare for the future if you don’t know what the future will be?
The simple answer is you don’t. You can’t base your strategy or your decisions off short-term predictions because many of those predictions will prove to be incorrect. Of course, that doesn’t mean you shouldn’t plan either. It’s always wise to reassess your strategy and make changes as needed. Below are some tips on how to do that in 2020:
Focus on the long-term.
It’s natural to feel anxious because of negative predictions or volatile financial news. However, it’s always important to remember that downturns are temporary.
There are two types of market downturns: a correction and a bear market. Corrections are downturns with losses of 10% or more. Bear markets are downturns with losses of 20% or more.
The average correction has a loss of 13% and lasts only 4 months. On average the market recovers from a correction after 4 months. Bear markets generally last longer and have steeper declines. They have an average loss of 30% and last for 13.2 months. However, the market usually does recover, and does so on average in about 22 months.5
We can’t predict when a bear market will begin or end. That also means we can’t predict when the recovery from a bear market will start. If you take impulsive action because there’s a prediction that the market may trend down, you could miss the bear market, but also the recovery. Or the prediction could be wrong, and you could miss out on continued growth. Instead, focus on the long-term and avoid emotional decisions based on short-term predictions.
Reduce your exposure to risk.
If you’re like many people nearing retirement, you’re not as comfortable with risk as you once were. Many people become more risk-averse as they approach retirement. After all, you don’t have as much time as you once did to recover from a market loss.
While no one can predict when a downturn may occur, you can take steps to make your strategy aligned with your more conservative risk tolerance. For example, you could shift your strategy to more conservative assets that have less exposure to risk and volatility. You could also utilize retirement income vehicles that offer growth potential without the chance of downside loss. A financial professional can help you identify strategies that can reduce your risk exposure.
Guarantee* your retirement income.
Are you approaching retirement? If so, you could take steps today to protect your income from short-term volatility and market downturns. One way to do this is by creating guaranteed* income from your retirement savings. There is an insurance product available that you can use to convert a portion of your retirement savings into income that is guaranteed* for life, regardless of what happens in the market or how long you live.
Ready to develop your 2020 investing strategy? Let’s talk about it. Contact us today at Heritage Financial North. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
Advisory Services Offered Through Change Path LLC, a Registered Investment Advisor. Heritage Financial North and Change Path LLC are not affiliated. Licensed Insurance Professional. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. No information on this website is intended to provide and should not be relied upon for or construed as accounting, legal, tax or investment advice. Neither Change Path, LLC not its representatives give tax or legal advice.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
19537 - 2019/12/10