Howard column: The rules they are a changin’ (again)
Things are brewing in Washington, D.C., that will impact your opportunities to build financial resources for your future. If you are, or know someone who is, winding down their accumulation years and ebbing toward their distribution season, pay attention. The House of Representatives passed the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019. It is now on the way to the Senate.
On the cusp of retirement, many people have questions on how to maximize your distribution “buckets”; which would include but not limited to your qualified plans, IRAs, home equity or Social Security. The SECURE Act will enhance your opportunities to add to or remove from a variety of financial tools. Let’s peel off a few layers of what could be changing.
Contributions and Distributions
Do you feel you haven’t contributed enough to your retirement plan, or do you want to continue to work by choice? Currently, you can’t contribute to a personal traditional IRA past age 70 ½, although you can contribute to a ROTH IRA (within income limitations). You also are required to start taking distributions (know as RMD) at 70 ½.
The new provisions include withdrawing the maximum age you can contribute to a traditional IRA and pushing back the start of the Required Minimum Distributions from age 70 ½ to age 72 (possibly age 75 if the Senate’s similar legislation passes). With the challenge of longevity and lack of adequate savings for many, this new law will help those wanting or needing to save more as they head into their golden years.
If you have been at a company at least three consecutive years and work at least 500 hours a year, this new legislation requires that your employer allow you to participate in its defined contribution plan (i.e. 401K). This will be a huge boon for folks wanting or needing to work part-time as they age and their ability to continue to contribute to their future.
Defined Contribution Plans — Lifetime Income Disclosure
Similar to the report you can get from Social Security to keep an eye on “what you can expect,” this bill would require that plans deliver an income disclosure annually that would show how much income the lump sum balance in the retirement account could generate. They are still working on figuring out the methodology for calculations as many variables need to be personalized per participant. For example, what rate of return do you use, for what life expectancy? Is there a spousal continuation element included?
Expanding 529 options
Creating flexibility with financial tools encourages people to save. The SECURE Act would allow people to use funds from their 529 plans to fund apprenticeship positions or to pay down qualified student loans up to $10,000. For a grandparent that wants to invest in their grandchildren’s education, this could be an appropriate tool to use creatively beyond what it is currently set up to do.
The landscape of retirement is changing dramatically. I call it “rewirement.” Longevity to embrace, working longer by choice or necessity, a paradigm shift is upon us. The gig economy is opening doors for creative income and minimizing expenses. People know that their retirement will look different from their predecessors’. Create your version of true prosperity in this next iteration of yourself. You personally have a lot of control. Outside of managing your cash flow, understand the intricacies of the current economic and political and tax environment. These are just a few of the components of legislation that will impact you in one way or another. As the proposal moves forward, stay tuned for more on what is happening in Washington and how to shift your personal trajectory moving forward.
Danielle Howard is a CFP® and CKA®. Check out retirement podcasts and blogs at daniellehoward4u.com. Wealth By Design LLC, an independent advisor is located at 23300 Two Rivers Road in Basalt. Visit her at http://www.wealthbydesign4u.com. 970-927-3909 Advisory Services offered through Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Cambridge and WBD are not affiliated.
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