Updated: Jan 17, 2020
The Setting Every Community Up for Retirement Enhancement Act of 2019 was passed at the final hour of 2019, and you need to know about it. There are a few VERY important details that will impact your retirement plan as a result of the Secure Act, and it is our goal to provide the crucial information to allow you to make any necessary adjustments.
If you have a retirement account with Berry Financial Group, this act is going to impact you and your heirs going forward in terms of distributions. The few changes we want to make you aware of are:
The Elimination of the Stretch IRA
Increasing the RMD Age to 72
Contributions to an IRA past age 70.5
1. The ELIMINATION of the Stretch IRA
This one change alone will bring in another $16 BILLION of REVENUE to the IRS! Who do you think will pay that $16 billion? The many baby boomers that have the majority of their money in IRA’s and PRE-TAX accounts will pay! In the past, a child, grandchild, nephew or niece could inherit your IRA and put it into their name which allowed them to stretch the IRA out over their life expectancy meaning they could take out 3-6% per year while continuing to get the tax deferral growth and income for 20-40 years! Now, that same person that inherits your Pre-Tax account will have to withdraw ALL OF THE MONEY within 10 years! They must pay taxes on your entire life savings within 10 years which will probably push them into a HIGHER tax bracket, DECREASING money they ultimately receive, and INCREASING what the IRS gets. Roth IRA’s and Life Insurance planning will be the key to delivery of TAX-FREE money to your family.
2. Increasing the RMD Age to 72
In the past, you would have to take out a Required Minimum Distribution in the year you turned 70.5 years of age. Now, you can defer your RMD until the you turn 72; hence, allowing an extra year for Tax-Deferral. Many investment companies and financial institutions are developing paperwork to send out to educate their clientele on this massive change. If you are already receiving your RMD, nothing will change.
3. Contributions to an IRA past age 70.5
You can now contribute to an IRA as long as you are showing EARNED INCOME even if you are older than 70.5! This is a big change and will allow people to continue saving for their future into their 70’s and 80’s as long as they are earning income. With the life expectancy increasing and lifestyle/health costs continuing to rise, the IRS is allowing IRA contributions as long as you are working. Even though they are making you take withdrawals in the form of RMDs at age 72 and beyond, if you are continuing to work, they will allow you to put a portion of this money back via the contribution if you choose.
These are huge changes and will have an impact on your retirement and also on your legacy to your family. Do you want to give the majority of your money to your FAMILY or to the IRS? Depending on what your goals and aspirations are, this is a great time to do planning to increase the WEALTH passed to your family and NOT to the IRS. At Berry Financial Group, we are here to serve you and to keep you educated on the changes occurring so you can make educated decisions to help you accomplish your financial dreams. Please give us a call if you are interested in passing your money on to the next generations in the most Tax-Efficient way. Tax rates are HISTORICALLY LOW. Wouldn’t it be incredible to pay taxes now at LOW RATES and generate TAX-FREE money for your family?