The SECURE Act Is A Financial Planning “Game Changer”.

And, there are implications many have missed.

Jim Lorenzen, CFP®, AIF®

Why did congress pass The SECURE Act?

Simple.  This major change will bring in $15.7 billion in tax revenue by 2029, according to the joint committee on taxation in their report on the bill, H.R. 1994.   And, guess whose money they want?   Yes, yours.

The administration, of course, is looking for ways to address the debt by raising revenue without actually talking much about the debt.  They’re even kicking the can down the road on taxes, talking about making the current tax-cuts “permanent” – as if Washington had ever passed a permanent tax bill; it’s “Washington-speak”.  The current tax law is set to “sunset”, i.e., expire in 2026, taking us all back to the pre-2017 tax rates.   Permanency would be achieved by removing the sunset date.  So far, so good; but, if you’re one of those planning for the next two decades, you should be thinking about what the next ten congressional elections might bring. 

The Stretch IRA is all but eliminated.  Under the old law, an heir could inherit an IRA and stretch the RMDs over his/her life expectancy.   Okay, considering the inheritance will probably take place during their peak earning years.   So, a $17,000 RMD on a $500,000 IRA (purely hypothetical) won’t make much difference.   However, under The SECURE Act the inheritor must liquidate the IRA by the 10th year.   There’s NO RMD REQUIREMENT, so, the heir could let the IRA grow until the last year—but, then would be required to withdraw ALL funds in one year—talk about playing roulette with what the tax laws will be when the entire balance is added to that year’s income for calculating the tax bill.   Alternatively, the heir could take a 10% yearly distribution, for example.   But, in our example, that would add $50,000 each year to taxable income during what would likely be the heir’s peak earning years!

For the owner of a traditional IRA, remember that RMDs are considered in two other areas:  (1) how much of Social Security income will be subject to taxation, and (2) as income for determining your Medicare Part B premiums.  Oh, yes, high income in retirement means higher Part B premiums.

It’s a good time, especially for those with substantial incomes, to do some planning.

Jim

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Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Planning to Roll Your 401(k) to Your Own IRA?

Jim Lorenzen, CFP®, AIF®

Getting ready to retire?  Planning to roll your 401(k) into your own IRA?  It will pay to do your homework first.

To help you get started, you might find our 401(k) Rollover Review helpful.  It contains information on changing jobs, retiring, methods, rollover taxation issues, and more.

i303a_ira-rollover-review_overview-report_vsa_001Click Here for your 401(k) Rollover Review!

 

What if Retirement Plan Statements Stated the Facts?

iStock_UncleSamLiftingWallet_MediumThe next time you open your 401(k) or IRA statement and see your current balance, it might be worth remembering it isn’t true.  The balance, you see, isn’t all yours!

Remember how many times you’ve heard the phrase tax deferred?     You’ll avoid taxes only as long as you leave the money untouched; of course, by age 70-1/2 or thereabouts you’re going to have to take some money out, whether you like it or not, because Uncle Sam wants his cut.

Then, the truth hits:  You’ve been growing money for Uncle Sam, too!

If you’re in a combined state and federal income tax bracket of 33%, it means only 66% of the balance you see on your statement is really yours – or ever will be.

For example, if your tax-deferred retirement plan statement indicates you have $500,000, remember it’s illusory.  Your tax bracket will 6a017c332c5ecb970b01a73dd6e411970d-320widetermine how much Uncle Sam will get – and Uncle Sam is not only the one who ‘writes the rules’, he also determines when he wants to do it.

If your combined state and federal tax bracket is 30%, for example, Uncle Sam’s balance in your account is $150,000.  Your balance is $350,000 – unless Uncle Sam changes his mind about your bracket.

So, the next time you look at your tax-deferred balance, you might want to whack-off Uncle Sam’s cut and enter the remaining balance on your own balance sheet – it will probably be a closer representation of what you really own when all the dust settles.

There are some steps you can take to reduce or potentially eliminate income tax in retirement, if you’re prepared to do what it takes today.

You have to ask yourself:

  • With an aging population demanding services, do I feel confident Uncle Sam won’t raise taxes in the future on those who’ve worked and saved?
  • With the “official” national debt over $19 trillion – and the real debt more like $89 trillion – do I feel confident Uncle Sam will simply manage better and keep taxes where they are on those who’ve worked and saved?

If you feel good about trusting their management of your money over the next thirty years, you may even be content with your tax status moving forward.  If not, you may want to begin exploring your options.

IFGi_4 Steps to a Tax Free Retirement_001Here’s a short report you might find interesting as a first step in your process.

You can access it here.  I hope you find it helpful.

 

Jim

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RESOURCES:

 

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

The 401K Failure

Fotilla Images

Fotilla Images

Are we in the midst of a 401(k) failure?  Some time ago, PBS aired an excellent program on retirement and how the various generation, including baby boomers, are being affected by their planning – or failure to plan.

It’s an hour-long program entitled, When I’m 65.  The program addresses savings rates, withdrawal rates, investment pitfalls, issues to address, pitfalls to avoid, and even the difference between advisors, including the fiduciary standard – what it means and why it’s different from the ‘suitability’ standard adopted by product sellers.  It also discusses the recent legislation affecting the advisory industry and consumers and even addresses annuities –  insurance-based products widely misunderstood by much of the general public who tend to see things through an ‘either-or’ lens (for additional information on income annuities, you can access a ‘primer’ here).

This PBS program is well worth watching. You may even want to forward it to someone who you think can benefit. You can see it here – scroll down to the video.

There have been questions about the failure of the 401(k) system that have been discussed in the media from time to time since the 2008-9 market meltdown.   This topic was addressed in a Frontline program some time ago and also well worth watching:

I addressed this issue myself in a webinar I recorded last year.  It’s also about an hour long; so, for those of you who aren’t faint of heart, you can access it here.  I think you might find it interesting, as well.

Hope you find all of this worthwhile and helpful.

Jim