facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Is Your Retirement More Secure? Thumbnail

Is Your Retirement More Secure?

Retirement Funding Taxes

The Congress recently passed and the President signed the SECURE act. SECURE is another inane Congressional acronym, so I won't spell it out (ever wonder whose job it is to make up those acronyms?). But the SECURE act is important, as it could significantly impact your financial plan and your tax burden in the future.

What Changed?

There are several things that changed with the SECURE act. The first, and I think most impactful, change is the elimination of Stretch IRAs. Stretch IRAs aren't a different type of IRA. It is just a way to signify that the inheritor of an IRA could stretch the distributions over his or her life expectancy. That went away and now all funds inherited in an IRA after January 1st, 2020 must be withdrawn within 10 years. You can take the funds out evenly or wait until year 10 and take it all. There are several planning opportunities here to "choose" your tax rate. You may want to fill up a tax bracket every year even if that might distribute all the funds prior to 10 years. Or perhaps your taxes won't go up that much if you wait until the end of the 10-year period and you'll have more money in your pocket even if you pay an higher tax rate. 

It is important to note that this rule doesn't apply to spouses, individuals not more than 10 year younger than the decedent, certain minor children (only to the age of majority) and a few other special cases.  For TSP, this rule doesn't go into effect until 2022

The most significant effect of this change will be for those who have named a trust as a beneficiary of an IRA. Most trust language, directs the trustee to pay out the Required Minimum Distribution (RMD) to the beneficiaries each year. But the new law in essence eliminates RMDs in inherited IRAs other than in year 10. This could cause a lot of problems and to be blunt, we're still figuring this out. If you're a client, we'll be addressing it. If you're not, you might want to talk to your estate planning attorney if this applies to you. 

The next significant change, is raising the Required Beginning Date (RBD) to age 72. You won't have to figure out when you pass a 1/2 year birthday. If you're age 72 on the 31st of December you have to take a distribution for that year. Like the current law, you can delay the distribution until 1 Apr of the year after you turn 72, but you'll have to take two distributions in that year, if you choose to delay your first distribution. And, in case you're wondering, if you turned age 70 1/2 prior to 1 Jan 20, you have to take a distribution for 2019 and 2020 even though you won't be age 72 yet.

One thing that doesn't change is you can make Qualified Charitable Contributions (QCD) starting at age 70 1/2. If you have significant charitable aspirations, a QCD is a very tax efficient way to support charity.

Some other changes include eliminating the 10% penalty for early withdrawal if used for childbirth or adoption. There are limits though. Another change allows you to contribute to a Traditional IRA after age 70 1/2 (That has always been the case with Roth IRAs).

What to Do?

As is the case with most new tax law, some things won't be clear until the regulations are written. It does appear that estate plan changes will almost certainly be required. Roth IRAs and/or conversions to Roth IRAs may be more appealing. Tax bracket management will take on a new significance for retirees and those who inherit IRAs.

If you'd like to chat about how this tax law change might affect you, give us a call.

If you found this article useful, you might like the following blog posts:

What Military Officers Need to Know About TSP and Estate Planning


Military Finances 301: Get Money Out of Your Retirement Accounts Early Without Penalty. Really.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.