With a Happy New Year come new tax laws… Well, in 2020 they did! Below I go through some of the changes that may in fact affect you in one way or another but first I wanted talk a bit about RISK and share a great read with you. It's an interesting way of looking at risk and it's really fascinating how we can't predict the risk but we surely need to prepare for it. I'd say it helps us realize why us financial advisors can be so boring and negative at times, we don't have a crystal ball and we never will, so if we seem to over do it in the protection department then you can see why! Take care and enjoy.
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.
Bottom line: This is good news for those who want to work and contribute to retirement savings accounts.
Similar to the old rule, first-time recipients of RMDs can still delay the first distribution until April 1 of the year following the year in which they turned 72… although that extension only applies to the first distribution, not any of the subsequent RMDs.
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 stay of RMDs and qualify under the age rules, then the new law may create some tax planning opportunities for you.
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 your financial planner about a Plan B for your IRA.
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 IRA and inquiring with your employer about your eligibility for new benefits). However, there’s no substitute to working with a professional financial advisor that you trust.
If you have any questions about how the new SECURE Act will affect your retirement, give us a call.
The Agile Investor is a blog that focuses on being prepared and informed on the topics of wealth management, investments, financial markets and investor psychology. I partner with people to help them achieve the conviction needed to obtain financial independence.