As the year turned from 2019 to 2020, there stealthily rolled in several of the most sweeping reforms to retirement and tax legislation in a decade or so (outside of the 2017 Tax Cuts and Jobs Act, or TCJA). The recent changes apply to IRA, 401k and other retirement savings accounts. If any of these apply to you then please read on:
Turning 70½ this or next year
Own a business with or proposing a 401k plan
Working for a small company and do not have access to a 401k plan
Need an early distribution for reasons of qualified birth or adoption
The beginning of October means we are in the 4th Quarter… and the countdown begins to year-end. The following are excerpts from the Year-End Tax Planning Checklist.* Several of these items, if addressed now, could make a big difference to your 2019 tax filing AND add to your savings.
Last week’s topic was potential danger to IRAs contained in new legislation lingering in the Senate. Those affected would be most IRA beneficiaries including you or your kids or grand kids. The scenario would affect the lives of more than just the wealthy. Therefore, it makes sense to present a handful of ways to minimize the possible negative consequences. Although, if the SECURE Act legislation is passed in its current form, these strategies will be even harder to come by.
Several current solutions have been discussed in prior editions of TGIF 2 Minutes, namely using the Roth IRA, Roth 401k or 403b, or Roth IRA conversions (see the link below for quick details of various Roth strategies). Most important is to have this issue on your radar – to create a balance by using both traditional and Roth strategies TODAY side by side for diversification.Continue reading “Minimizing Danger to Your IRA”
In the heart of this already HOT summer of 2019, the heat may only be beginning for your IRA. Under the seemingly friendly title of the “SECURE Act” Congress is considering plans to over-reach in the form of future taxes on IRA accounts.
There are several positive and constructive elements of the bill recently passed by the House of Representatives and currently in review in the Senate. These include provisions to lower the threshold for small employers to offer 401k plans to their employees. However, a key part of the bill would do away with one of the most popular and widely used aspects of current IRA rules: the “Stretch IRA” for beneficiaries.
Currently, and dating back to the 1990’s, the Stretch IRA favors longevity by allowing a beneficiary to stretch inherited IRA monies over a lifetime, or until the IRA (or rolled over 401k) monies are depleted. This feature has come to be a popular and inexpensive long-term planning tool. The “Stretch” also aids in managing the tax consequences of becoming an inheritor of IRA monies. Continue reading “Potential Danger to Your IRA”
More on the topic of 401k saving: Can there be an “optimal amount” to have in a traditional 401k? At the very least, adjustments can be made to get close-to-optimal. And timing wise with the calendar approaching mid-year there is ample time (unless you have already maxed out your 401k) to make meaningful adjustments to your 2019 401k elections and start the optimizing process.
This topic is especially important for those who take saving seriously and who have at least $400,000 TODAY in a 401k or IRA Rollover accounts combined with a 401k account. (For those with less, these concepts still matter but with less urgency.)
First: How old are you?
Age matters because TIME is one of the biggest determinants of how much a 401k balance can potentially grow.
If you are younger than 40, these concepts could affect you A LOT as the power of compounding can kick in over multiple decades (this does not mean trading; rather saving, allocating and allowing compounding to do its work).
If you are older than 60 and nearer to retirement or selling a business, these concepts matter greatly but the solutions will be slightly different.
If you are in your 50’s, a combination of strategies can work – and keep in mind the “catch up” that allows you to save more.
As we roll full steam into the New Year 2019 it helps to be aware of a handful of changes related to taxes and tax-deductible contributions to 401k plans, IRAs and the like.
Important to recognize (when in a calm state of mind) is that with last year’s introduction of one of the most sweeping tax law changes in decades, filing for tax year 2018 may contain both pain, in terms of lost SALT deductions, and valuable lessons for how to proceed in tax year 2019. In the meantime, consider the following.*