What The SECURE Act Means For You

What The SECURE Act Means For You

 

You may have heard about the significant tax and retirement reforms recently signed into law under the catchy name Setting Every Community Up for Retirement Enhancement (SECURE) Act. These sweeping changes were drafted to promote increased retirement savings by expanding access to retirement savings vehicles, broadening options available inside retirement plans, and incentivizing employers to open retirement savings plans for their employees.

Some of these changes have a much wider impact than others, but here is a summary of the key takeaways and provisions of the SECURE Act most likely to affect you.

The age to begin required minimum distributions (RMDs) increased from 70 1/2 to 72. The later RMD age of 72 will only apply to those turning 70 1/2 in 2020 or later. Anyone who turned 70 1/2 in 2019 will still be subject to the original RMD rules. While not a huge delay, individuals could benefit from an extra year and a half of compounding returns if they choose not to withdraw funds from their Traditional IRA. It can also provide additional time to make strategic Roth conversions while in a lower tax bracket. It is important to point out that the Qualified Charitable Distribution age has not changed, so QCDs can still be made starting at age 70 1/2.

The maximum age to contribute to a Traditional IRA has been removed. You may now contribute to a Traditional IRA even if you are over 70 1/2. This is a great benefit to those continuing to work into their 70s, as contributions to a Traditional IRA are tax-deductible. After your RMDs have started, continued contributions allow for an offset of the taxable income realized from these required IRA distributions.

The Stretch IRA rule, allowing non-spouse beneficiaries to “stretch” distributions from an Inherited IRA over the course of their lifetime, has been eliminated. This provision, enacted as the funding offset for the bill, requires that non-spouse beneficiaries distribute all assets from an Inherited IRA within 10 years of the account owner’s passing. Spouses, chronically ill or disabled beneficiaries, and non-spouse beneficiaries not more than 10 years younger than the IRA owner will still qualify to make stretch distributions. Minor children will also qualify for stretch distributions, but only until they reach the age of majority for their state (at which time they would be subject to the 10-year payout rule). These new rules only apply to inherited IRAs whose account owner passed away in 2020 or later.

This change will have the most significant impact on adult children inheriting IRAs, who now will have to recognize income over a 10-year period instead of over their lifetime. For those still in their prime working years, this may mean taking distributions at more unfavorable tax rates. Trusts named as IRA beneficiaries also face their own set of challenges under the new law. Many are now questioning whether they should start converting Traditional IRA assets to a Roth IRA, or significantly increase conversions already in play. Unfortunately, there’s not a one-size-fits-all answer to this question. It’s highly dependent on a number of factors, including current tax brackets, potential tax brackets of future beneficiaries, and intentions for the inherited assets. We’ll explore this and additional estate planning concerns and strategies in more depth in future articles.

Here are a few other changes that are worth mentioning:

  • Penalty-free withdrawals of up to $5,000 can be made from 401(k)s or retirement accounts for the birth or adoption of a child.
  • 529 accounts can now be used to pay back qualified student loans with a lifetime limit of $10,000 per person.
  • Tax credits given to small businesses for establishing a retirement plan have been increased.
  • A new tax credit will be given to small businesses adopting auto-enrollment provisions into their retirement plans.
  • Liability protection is provided for employers offering annuities within an employer-sponsored retirement plan.

If you have questions or concerns about how the SECURE Act impacts you, please reach out to your financial advisor or contact us for assistance.

 

 

 

What Are Your Financial New Year & New Decade Resolutions?

What Are Your Financial New Year & New Decade Resolutions?

 

It’s the start of a new year, a new decade even. For a lot of us it means setting new intentions or revisiting goals that may have been forgotten. It also means having to fight for a treadmill at the gym (at least for the next month or so). As you think about the year ahead, what resolutions or intentions are you setting in your financial life?

Here are a few tips on the best way to create and stick to a resolution, according to science:

The more specific the better.

Saying you will save more is too vague to be able to gauge your success. Most likely you’ll lose track of your progress and abandon this resolution at some point in the year. Try creating goals with specific metrics you can track, like “I will increase my contribution to my 401(k) from 5% of salary to 8%.” Or if you’re saving for a specific goal, like a down payment, determine a specific amount to set aside per month.

Set yourself up for success.

Ask yourself how likely you are to meet the resolution you set. If the percentage is below 75%, consider making the goal more achievable. If you want to pay off all your debt by the end of the year, you may get discouraged if an emergency expense comes up and you aren’t able to meet your goal despite your best effort. Instead, try setting an amount to put towards your student, car, or home loan that you feel confident you can maintain throughout the year.

Knowledge is power.

Many people draw a blank when asked how much they spend each month. Trying to budget without knowing what current spending looks like is a bit like trying to lose weight without actually tracking your weight. Reviewing your spending each month and understanding where your money is going will make you a more conscientious consumer. There are many great free online budgeting solutions that you can start using now.

Reward yourself.

Associations are powerful. We avoid things we don’t want to do and, in the process, those tasks can start to pile up and feel more burdensome to even start. Take some of the doom and gloom out of working on your finances by making the process more enjoyable. Have a special treat or drink while you budget. Play some of your favorite music while you review your retirement account. Tackling your finances in smaller, more frequent chunks of time will also make the process more palatable.

Ask for help.

Sometimes we get stuck, and that’s okay. If you have a financial advisor, leverage them as a resource to get guidance when needed. Often, we just need a little nudge in the right direction to get back on track.

 

 

It’s Time to Plan Your 2020 Retirement Contributions

It’s Time to Plan Your 2020 Retirement Contributions

As we reach the end of 2019, it’s time to start thinking about your finances for 2020. Many employers will begin open enrollment over the next few weeks, and this is a great time to review your retirement plan contributions.

The IRS announced earlier this month that employees will be able to contribute up to $19,500 to their 401(k) plans in 2020. They also raised the catchup limits (for those over age 50) from $6,000 to $6,500. Lastly, the 2020 contribution limitation for SIMPLE retirement accounts increased to $13,500, up from $13,000. Note that the annual contribution limit to an IRA remains unchanged at $6,000.

Summary of Changes for 2020

The new 2020 retirement contribution limits are as follows:

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If, during the year, either the taxpayer or spouse was covered by a retirement plan at work, the deduction may be reduced (phased out) or eliminated, depending on filing status and income. If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply. Here are the phase-out ranges for taxpayers making contributions to a traditional IRA in 2020:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000.
  • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA in 2020 are:

  • For single taxpayers and heads of household, $124,000 to $139,000.
  • For married couples filing jointly, the income phase-out range is $196,000 to $206,000.
  • For a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The 2020 income limits for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) are:

  • $65,000 for married couples filing jointly, up from $64,000
  • $48,750 for heads of household, up from $48,000
  • $32,500 for singles and married individuals filing separately.

It is important to note that the IRS has raised the 401(k) and 403(b) contribution limits in 4 of the last 5 years. These have been fantastic opportunities to contribute more into these retirement investment vehicles. So please make sure to adjust your recurring contribution amounts to better take advantage of this increase in limit. If you have any questions, feel free to reach out to us!

 

Source: Internal Revenue Service Notice 2019-59

The Lessons I Learned by Not Hiring a Professional from the Start

The Lessons I Learned by Not Hiring a Professional from the Start

As many of you know, my wife and I had our first child earlier this year. As such, we’ve been slowly working on improvements around our house to make it more kid safe. One project was to upgrade our garage door openers to the 21st century to include the safety reverse sensors. To fund this project, we used the money set aside from the monthly contribution to our home improvements fund. So far so good, right?

What happened next is similar to what many people do when deciding whether to hire a professional to help them.

For this project, I decided to replace my garage door openers on my own. I had never done it before, but I convinced myself that I could do it because of the following considerations:

  • Time – I’d need to be home while the installation pro was there anyway, so why not just use that time to install them myself? Importantly, I could do it when it wouldn’t impact my wife or son.
  • Cost – I didn’t want to pay for a professional to install the garage door openers. By doing it myself, we could save our hard-earned money and put it in savings or toward other projects.
  • Privacy – I simply didn’t want a stranger in my home, even if it was only for a couple of hours in our garage.
  • Resources –With all of the YouTube how-to videos, forums, and step-by-step guides available online, I thought it would easy to figure out how to do it. Clearly, many others with similar skills had been successful.

Here’s what I learned the hard way after spending 10 plus hours on this project, without installing even one garage door opener successfully:

  • Time – The project ended up taking four times what I thought it would, without success! I wasn’t very popular with my wife as she had to pick up my slack on the weekend chores and baby duty.
    • Lesson 1 – A professional could have installed each garage door opener in 45 minutes. I could have spent my time (our most limited resource) in far better ways.
  • Cost – I ended up paying a professional to install the garage door openers. I was left with a tough choice of paying a small fortune to get them installed right away (my car was outside since I removed a garage door opener) or wait for their regular scheduling. And, I had to replace a couple of parts that I damaged (argh!) and buy a wrench set that I likely won’t use.
    • Lesson 2 – Focusing only on cost is a mistake. It’s super important to also consider the value of your time. It might have made sense for me to take on this project if it took just two hours to complete, but 10 plus hours – no way!
  • Privacy – I was anxious about this at first, but the benefit of not having to do it myself eased my mind (especially after what I’d gone through!).
    • Lesson 3 – A professional is licensed, insured, experienced, and vetted. While my apprehension may lead me to believe that having a stranger in my home is a risk, this was not the case with a professional.
  • Resources – In hindsight, all the video tutorials and guides in the world wouldn’t have made this project easier. The actual installation was infinitely more difficult than the installation videos made it look.
    • Lesson 4 – Implementing a task, project or plan is the hardest part of any process. Too often, one part does not go according to plan, throwing everything off. There’s simply no substitute for expertise.

The last consideration I overlooked, which could have been the costliest, is risk. The risks include:

  • I could have installed the safety sensors or garage door opener incorrectly, causing a family member to be seriously injured. Or, the car could have been damaged.
  • The garage door opener could have fallen on me during the removal of my old opener and the installation of the new one (especially since we didn’t have the right height of ladder as recommended in the instructions – I didn’t want to buy a new ladder).
  • I could have injured myself with the disassembly of the old garage door opener or during the assembly of the new garage door opener. Mistakes and injuries happen more often than we think with DIY projects.
  • I could have damaged major parts (beyond what I already did!), which could have cost me a lot more money. Warranties and store policy exchanges don’t protect against negligence and true ignorance.

We hired a professional to minimize these risks for our family. 

As a note: My wife recommended from the start that we hire a professional to install the garage door openers. I learned my lesson here, too! As such, I had to park my car out in the cold until my garage door was fixed. Going forward, I will forever remember these lessons because time is our most finite resource and we need to be more intentional with how we spend it.

How Early is Too Early to Buy a House?

How Early is Too Early to Buy a House?

Home ownership is a goal for many Americans. After all, there’s nothing quite like going home to a place you know is truly yours. But when it comes to buying a house, the right time differs for everyone.

The problem is that buying a home can often feel like an uphill battle. Statistics from the US Census Bureau show that home ownership remains highest among those aged 65 years or older, which means that it remains a pipe dream for many others.

To be sure, there is some wisdom behind waiting until you’re financially secure before buying a house. If home ownership is part of your plan down the line, it’s best to work backwards in order to plan out just how you’ll get there.

Consider the types of houses available

Do you want to buy a house as soon as possible, or would you rather wait it out in order to get a larger property? As our post ‘Do I Need to Buy a Home to Be Successful?’ details how thinking ahead and considering your career path can help you determine whether you’d like to settle in a smaller or bigger space. It will also determine how much you are willing to spend.

In addition, you should also consider whether or not you’re planning to move any time soon. The Miami Herald found that millennial mobility is currently low, which can be beneficial when it comes to finding a home due to less competition. Millennials are also gravitating towards apartments and co-ops as this allows them peace of mind if they plan on moving; this leaves the market open for those who want to delve into houses. Therefore, knowing whether or not you’ll be settling down somewhere can help kickstart the home ownership process.

Check your mortgage

The Washington Post’s survey on financial care experts shows that there’s a lot of anxiety surrounding all the factors that go into buying a house. People get so caught up with the promise of owning a house that they forget the practical considerations that dictate what kind of property they can afford. You’ll also need to plan out your short and long-term financial goals in order to see how buying a home fits into these plans, which is where professional help comes in. A financial planner can take stock of your current finances as well as your goals in order to come up with the best housing loan for you. Research from Maryville University shows that financial experts now complement market knowledge with insights on investment strategies, which is why getting a consultation early on is hugely beneficial. The kind of mortgage you can take out depends on your financial standing, how much debt you owe, and your monthly income — all of which can be analyzed by a professional to make sure you get the best deal.

Spend time to find the best lender

On the subject of professional help, cultivating relationships with financial experts can help you own a home sooner rather than later. Real estate writer Julia Dellitt suggests seeing mortgage lending as akin to speed dating, where you get to know a handful of lenders before committing to one. Dellitt emphasizes that a difference in 0.5% interest may look small on paper, but it makes a huge difference in the total amount of interest paid over the lifetime of the loan. Giving the lender a full account of your finances allows you to narrow your search down to the best options.

Keeping your financial records in order also goes a long way in proving to lenders that you’re trustworthy. These steps will allow you to get pre-approved for a loan, which is an important requirement for many sellers.

The real estate market tends to be relatively stable, which means you shouldn’t consider jumping the gun once you see a dip in mortgage rates — especially if you aren’t ready. Since home ownership is a lengthy process, it’s worth asking early on whether or not it’s a journey you’re prepared to embark on soon.

 

Exclusively written for merriman.com

By Juliet Baesler

Fall Items to Check Off Your List

Fall Items to Check Off Your List

With fall fast approaching, it’s time to take care of a few things before year end that can also set you up for the start of next year.

    • Retirement contributions and withdrawals – Just as it’s important to make the necessary contributions to your retirement plan based on your financial plan, you must also take your required minimum distribution (RMD) by December 31 to avoid any penalties if above age 70 ½ or own an inherited IRA. The Merriman Client Services team is hard at work making sure these are all completed for clients. Contributions: The deadline for 2018 Roth IRA and Traditional IRA contributions is April 15, 2020.

(more…)