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How might the new retirement plan rules affect you?

Recent legislation could affect you in four broad areas of your retirement planning...

Shaking Hands1. Required Minimum Distribution Relief for Retirement Plans

Prior you were required to start making withdrawals at age 70 ½. But for people who had not turned 70 ½ by the end of 2019, the new rule pushes the RMD start date for most situations out until age 72.

This could give you additional time to allow your IRAs and 401(k)s to grow.

2. Additional Roth Conversion Planning Opportunities

Because RMDs won’t start until age 72, the new law will give you an additional two years to do what are known as Roth conversions without having to worry about the impact of required distributions.

Roth conversions can be attractive to those who can convert taxable money in an IRA into a Roth IRA at lower tax rates today than you expect to pay in the future.

3. Increased Tax Advantaged Savings Opportunities

If you are working into your 70s, you can still put money into a deductible IRA. This law change means a both working couple over 70 ½ will be allowed to save to an IRA over $14,000 in 2020. This can help them receive a valuable tax deduction and save for the future.

4. Review Your Beneficiary Designations

The new rules also removed most so-called “stretch” provisions for beneficiaries of IRAs and 401(k)s.

In the past, if a traditional IRA was left to a beneficiary, that person could, in most cases, stretch out the RMDs over his or her own life expectancy, essentially “stretching” out the tax benefits of the retirement account. But with the new law, starting on Jan. 1, 2020, most IRA beneficiaries will now have to distribute their entire inherited retirement account within 10 years of the year of death of the owner.

Surviving spouses, minor children and those not more than 10 years younger than the deceased, however, are generally exempt from this new SECURE Act 10-year distribution rule. So, the SECURE Act means it’s now very important to review the beneficiary designations of your retirement accounts to make sure they align with the new beneficiary rules.

Anyone with a trust as the beneficiary of an IRA or employer-sponsored retirement plan such as a 401(k) should immediately review the trust’s language to see if it still aligns with his or her intended goals. 

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