The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) recently passed in the House of Representatives by a margin of 417-3 last Thursday. The bill is slated to be successfully ratified into law by the U.S. Senate later in the year in a rare moment of bipartisanship.

The SECURE Act marks the most momentous legislative change in retirement planning since the Pension Protection Act of 2006. That said, the SECURE Act that passed in the House of Representatives recently is a necessary and expected change to the U.S. retirement system. 

Why? Because the Tax Cuts and Jobs Act passed in President Trump’s first year in office effectively punted on retirement reform. The SECURE Act, by contrast, would allow for 29 fresh provisions or groundbreaking changes to existing retirement protocol. 

The way that all of this will play out legislatively is fairly predictable. The Senate has a sister bill called the Retirement Enhancement Securities Act (RESA), which will interplay with the U.S. House of Representatives SECURE Act. Aspects of the Senate bill will make their way into, and be modified by, the House bill and vice versa over the coming weeks. 

This reconciliation process is needed to harmonize the bills with each other and with what average Americans want out of their retirement plans. The bill that makes it out of reconciliation is expected to remove IRA age limits, expand the start of required minimum distributions (RMDs), and enhance the possibility that more employers set money aside for retirement plans. 

Both the SECURE Act and RESA are meant to address social security funding issues and out-of-control pharmaceutical costs in particular and healthcare expenses more generally. The Medicare system is thought to be under serious strain at present since about a third of Americans don’t set anything aside for retirement and rely on the system to the exclusion of everything else. 

So, how can the SECURE Act and RESA make things better? The first salient aspect of both of these plans is that each enhances the ability of small employers to create retirement plans for their employees. The bills make multi-employer plans easier to undertake, and each plan allows smaller employers the opportunity to create 401(k) retirement plans with fewer worries about fiduciary oversight. 

The SECURE Act will also delay the RMD (minimum distribution) requirement to at least 72 years of age. The current RMD cutoff is 70.5 years of age. The surprising thing about these upcoming retirement changes is that the Senate is attempting to push the RMD requirement to beyond the House’s ambitious uptick and set the RMD requirement to 75 years of age. 

Another positive aspect of these upcoming changes to retirement planning in the United States is a removal of age limits on IRA contributions. Previously, retirement savings were effectively discouraged insofar as individuals who continued to work into their seventies had a harder time making contributions. In the old system, once you hit the age of 70.5 years old you were disallowed any contribution to an IRA, though you could still contribute to a Roth IRA past this arbitrary cutoff. Section 114 of the House’s SECURE Act would shore up older workers’ ability to make regular IRA contributions by axing the aforementioned age limitation. 

But since every new piece of legislation has to include both a stick and a carrot in order to correctly balance incentives that Americans will face when planning for retirement, both the SECURE Act and Resa feature some kind of tax credit for automatic enrollment. These tax credits will redound to small employers. The aim is greater accessibility.

Source: https://www.wsj.com/articles/house-on-track-to-pass-bill-making-big-changes-to-u-s-retirement-system-11558625474

It is never too early to begin thinking about retirement. Even if that season of life is decades away for you, the financial decisions that you make now can have a significant impact on your quality of life later down the road. As you begin planning for your future, it is important to have a guideline for each age in life. Here are ten stages of life and what you need to be doing at each age to best prepare your finances for life after retirement:

UNDER AGE 49: Now is the time to be aggressive with funding your retirement accounts. Leverage the power of compounding interest when you are young and you will be set in the later years. In 2019, the federal 401(k) contribution limit is $19,000. You can add an additional $6,000 in an individual retirement account (IRA) to bring the total contribution to $25,000.

AGE 50: Once you hit age 50, you can add an additional $6,000 to your 401(k) per year. Take advantage of this increased limit to ramp up the savings during your prime earning years. You can also boost the IRA contribution by another $1,000. This puts your contribution maximum at $32,000.

AGE 55: Now is when you can begin withdrawing retirement funds without penalties from a past employer. This allowance can be beneficial if you are simply cutting back hours and need funds to bridge the gap.

AGE 59 1/2: This is the magic age in which you can begin taking out money from your IRA and other retirement accounts without accruing the standard ten percent withdraw penalty.

AGE 62: Age 62 is when you become eligible to receive social security payments. However, it is important to proceed with caution, as monthly payments are reduced for the remainder of your life if you begin withdrawing early. By choosing to begin taking out funds at this age, your monthly allowance is reduced by 30 percent. This amount decreases the longer you wait.

AGE 65: As the benchmark standard retirement age, 65 is when you become eligible for Medicare. Even if you are not withdrawing on your retirement funds, it is important to sign up for this service three months prior to turning 65 so that you do not incur costly additions to your monthly premiums.

AGE 66: Depending on when you were born, this is the age when you may receive the full benefit of your social security payment. Those people born between the years 1943 and 1954 qualify for the entire benefit at age 66. If you were born between 1954 and 1959, the age in which you receive your full benefit kicks in at different intervals during the year that you are 66.

AGE 67: For those people born after 1960, 67 is the age in which the full social security benefit is realized.

AGE 70: Once you hit age 70, it is no longer beneficial to delay receiving social security benefits. If you have not already done so, now is the time to begin receiving these benefits.

AGE 70 1/2: Anyone over the age of 70 1/2 is no longer allowed to receive a tax deduction for IRA contributions. Likewise, you are now mandated to begin withdrawing funds from your 401(k) and IRA accounts and pay the income tax on these withdraws. The only exception to this rule is if you are still working and have a 401(k) account with that current company.

Sources:

Although we assume many of our readers know what a 401(k) and an IRA are, let’s cover these quickly.

What is a 401(k)?

401(k) retirement, savings, and investment accounts are tax-deferred ways to invest your money where your contributions are typically matched – a portion of those earnings, usually not all of them in dollar-for-dollar fashion – by your employer. These plans are named after the section of the Internal Revenue Code – 401(k) – that lays out the rules for these plans.

There are other benefits that 401(k) plans bring to the table, such as not having to pay money on the growth of your 401(k) account over the years. This reduces your taxable income, a valuable perk during your peak earning years. The government taxes withdrawals in retirement, but most people won’t have high incomes at that time. As a result, they will make their withdrawals in a lower tax bracket. Even if they are withdrawing large amounts of money, the asymmetric nature of tax brackets means most of them will benefit from the lower taxes – an easy way to play some tax arbitrage.

What is an IRA?

IRA is short for Individual Retirement Account, which is a type of investment account and is one of the easiest ways to save for retirement.

Individual Retirement Accounts can be used to purchase stocks, mutual funds, ETFs or other financial instruments – basically all kinds of investments. Further, IRAs may also provide tax breaks that help reduce your taxable income, and the taxes you must pay. 

Now that you understand what a 401(k) plan and an IRA are, let’s highlight this year’s changes to the 401(k) account’s contribution limit

Up until 2018, Americans who are saving for retirement were able to sock away $15,000 in their 401(k) accounts and $5,500 in their Individual Retirement Accounts. 

Starting in 2019, these contribution limits have increased by $500 for each account.

If you use 401(k), 403(b), and 457 accounts, as well as the Thrift Savings Plan, you will be legally able to shelter $19,000 in earnings in 2019. IRA limits have increased to $6,000.

If you’re in a marginal tax bracket of 24%, and also pay a state tax bracket of 9.3% like many of our California clients, contributing $19,000 to your 401(k) helps reduce your  income tax by $6,327. Sort of like a tax subsidy from the government to help fund your retirement accounts.

Workers who are of at least 50 years of age will be able to contribute a maximum of $25,000 to such accounts in 2019, which is up from the cap of $24,500 from last year. 

The 2019 Individual Retirement Account Contribution Amount

In 2018, the IRA contribution cut-off was $5,500. It had remained at this amount since 2013. This year’s $6,000 limit can be contributed anytime until April 15^th, 2020.

American workers who are of age 50 or greater will not be able to store more money to their Individual Retirement Accounts in their later years in a greater amount than what was available in previous years. The catch-up contribution cap for the Individual Retirement Account will stay true at $1,000.

Traditional IRA Changes

People who own 401(k) accounts can’t claim tax deductions on their contributions for 2019 if their earnings are more than $74,000 if filing individually, or $123,000 as a married couple. Each of the amounts increased $1,000 this year and $2,000 this year, respectively. The tax deduction starts being phased out at the amounts of $64,000 and $103,000 for 2019.

Roth IRA changes

This year, the maximum income ceiling for Roth IRA contributions after has risen $2,000 for individuals and $4,000 for married couples filing jointly. 

People earning $137,000 individually or $203,000 as married couples can’t contribute to Roth IRAs. Their ability to contribute starts to be phased out at $122,000 and $193,000 for individuals and married couples, respectively.

Once you move to a different employer, or retire, you’ll want to rollover the 401(k) balances. This helps prevent maintaining several accounts with different institutions, making your finances simpler to manage, and making the calculations and withdrawals of Required Minimum Distributions in retirement much easier.

Individuals working for years and planning for retirement ultimately lead to be dynamic go-getters who don’t want to think about the limitations and possible incapacitations of old age. However, with smart planning in your 50’s and 60’s, you can protect your heirs from financial risk and even protect a business from a crippling lack of leadership.

Costs of Long Term Care

Depending on where you live, long term care can cost you anything from $54,800 to $150,200 per year. While nearly half of all those who use a long term care facility are there for more than a year, this expense can be covered by a long term care policy. 

Average costs on long term care policies run approximately $2,700 per year, though significant discounts are available for couples. Depending on when you buy, you can lock in a low rate that will protect you from the expense of a long stay in an assisted care facility.

Business Protection

If a great deal of your assets are tied up in a business, work with your attorney and business partners to make sure that your assets and legacy will be protect in the event of a catastrophic health challenge. 

Make your intentions and goals known. Take care that any personal savings would be readily accessible to your spouse or heirs as you intend in the event you can no longer authorize withdrawals or sign checks. Consider setting up a trust to divert your assets into a tax protected vehicle in the event of your incapacitation.

Daily Cares

It’s important to note that the majority of those currently receiving daily assistance are still living at home. In terms of budget, this makes good sense. While the average cost of a semi-private room is more than $80,000 in the United States, a full-time health aide will cost less than $50,000.

Spousal Protection

In the event of a catastrophic health event that requires skilled nursing care, a long term care policy can provide substantial protection for your remaining assets. For example, should your resources be exhausted and you need to rely on Medicaid due to lack of insurance, your spouse would be able to keep slightly more than $100,000. 

With a long term care policy that offers asset protection for your partner, your partner will be able to keep more. The amount of protected coverage will be determined by the policy. 

Also be aware that Medicaid rules vary from state to state, so don’t rely on this protection without a careful review by your insurance agent and attorney.

Consider Touring Local Facilities

One of the greatest challenges in choosing long term care is finding a bed in an emergency. If your health history demonstrates that you may need long term care, consider finding a facility with a feeder facility, such as apartments or condos. You would likely have closer access to long term care when you need it, and you can use the features at the feeder facility to improve your health and put off long term care as long as possible.

The best time to make plans for long term care is long before you need it. With the right policy, you can protect your assets, guard your heirs and shield your partner from great worry and expense.

Social Security is one of the main benefit programs for workers in the United States. At some point, almost everyone will collect something from Social Security. If you are getting close to collecting from Social Security, you might be wondering how the program works and what to expect. Here are some of the most commonly asked questions about Social Security benefits.

How Old Do You Have to Be to Collect?

The short answer is that it depends on when you were born. Also, you can decide if you want to start collecting benefits earlier and take a smaller amount, or if you want to wait for a higher amount.

The soonest you can start receiving benefits is at age 62. If you do that, your monthly payment will be smaller. You can delay the payment each year and it will keep increasing until you’re 70 years old. So it’s really up to you how you want to handle it. The “full retirement age” is considered 65 for those born before 1938. If you were born after that, there’s a sliding scale up to 66 years and 4 months to reach retirement age.

How Much Can I Get?

The amount you get from Social Security varies depending on when you retire and when you were born. How much you earned over your career also plays into the calculation. To give you an idea, the average benefit for someone on Social Security as of January 2019 was $1464 per month. On the high end of the spectrum, you could earn as much as $2861 per month if you waited as long as possible to retire and were in the highest bracket. Your spouse can also receive a benefit of roughly half of your benefit. If you pass away, your spouse can also keep receiving spousal benefits from Social Security.

When Do I Get My Social Security Check?

The short answer is, you won’t actually get a check. Social Security doesn’t mail physical checks, but you can sign up for direct deposit. In that case you’ll get an automatic deposit into your account. Another option is to receive a prepaid debit card with your benefits on it. If you do automatic deposit like most people, the day that the deposit arrives varies depending on when your birthday is.

If your birthday is in the first 10 days of the month, your payment will arrive on the second Wednesday of the month. If your birthday falls in the range of the 11th through the 20th of the month, then you’ll get your payment on the third Wednesday of the month. If your birthday is after the 20th, you’ll get the payment on the fourth Wednesday.

How Do I Apply for Social Security benefits?

The easiest way to apply for Social Security benefits is online at SSA.gov. Another option is to go to the local Social Security office and apply in person. You can start this process when you’re 61 years and 9 months old. You can receive your first benefits when you turn 62 if you wish to start as early as possible.

Remember, Social Security benefits should only account for a portion of your retirement income.  A retirement plan with other sources of income is ideal and we are here to help you plan for the retirement road ahead.

One of the crucial decisions in life if you have minor children is to make arrangements for the guardian or guardians who will finish raising your children if you and your spouse should happen to die in a common accident or weather disaster.

A will likely find that a lot of thought and planning have to go into that decision, and you need to give it a great deal of consideration.

The first step is to have a complete discussion with the person or people that you have considered for this very important family event. There are a multitude of factors that enter into this designation, some of which are the following:

* Does the person really want that responsibility? Will there be passion in performing the “duties” and the financial ability to do so?

* Does that person have the same parenting methods, discipline ideas, lifestyle, finances, religious beliefs, medical decisions, motivation, and future plans for the children’s education that you do?

* Although you may think your parents are the perfect answer, would they be capable of assuming that role if many years go by and they have medical or age related restrictions if the time ever came?

* Where is the guardian located? Would it mean an upsetting move for your children into a totally new area without friends? Will they perhaps be put into a large family and are used to a small one?

Guardianship provisions are an integral part of your estate planning, as follows:

* You must deliberately and carefully spell out the guardian or guardians that you have chosen in your will or living trust or in a proper separate document where parents can designate a guardian. A qualified family law or estate attorney will provide all the necessary language and the required documents for your state and will even ensure that future children born or adopted would be included in the guardianship designation. The legal guardianship of minor children is regulated by each individual state, which has its own unique requirements, rules, and obligations.

* It is considered good practice to name at least one alternate guardian in case circumstances change.

* You may think that if you do not specify a guardian, one of the children’s closest relatives will be appointed. Realize that the person may not want or is not prepared to take on that role, and it would be up to the court to decide who to appoint. You might not agree with that decision.

* In the future, whenever you review your will to see if it is up-to-date, remember to also review your guardian choice to make sure it still is appropriate.

How do guardianships and adoptions differ?

A guardianship of minors is a legal relationship between the guardian and a minor child where the guardian has certain obligations and rights regarding that child. A guardianship does not sever the legal relationship between the biological parents and the child, and they co-exist. 

An adoption permanently alters the legal relationship between biological parents and a child. The adopted parents become the legal parents, and the biological parents give up their parental rights and obligations.

Rest easy

You may hope and pray that the day will never come when a guardianship would be necessary, but you will have peace of mind if you have provided for your children in the event that such an event ever occurs.

This years tax deadline is behind us. If you received a refund, what’s your plan?

Some taxpayers choose to spend the entire check on clothing, shoes, and their appearance.  They never look into investing their money for their own personal future. In a sense, you may be temporarily happy about your purchases or your new hairstyle, but in the future, you might regret not investing some of the money for your retirement.

There are many ways to put your tax refund to work, such as:

• Invest in a healthcare savings account

• Paying off school loans

• Emergency savings account

• Start an IRA

These options can help you with lowering your debt and being prepared for those unexpected situations. If have a high deductible health care plan at work, you can open a healthcare savings account or HSA. These funds are used in case you have a medical emergency that needs to be taken care of right away, such as a broken bone, a fractured ankle, or a broken hand. 

If your health insurance doesn’t cover the cost of the procedure, you can use your healthcare savings account. The greatest advantage to this type of account is that you won’t be taxed when using it for healthcare. 

If you reach retirement age, you can use the money for glasses or hearing aids and even medical premiums. You can use it towards your out-of-pocket expenses as well.

Let’s take a look with those that have a 401k plan. 

While contributions to a 401k plan must come from your paycheck, you can divide your refund by the number of remaining paychecks for the year and thus use it to contribute towards your 401k. According to the Internal Revenue Service, the average tax refund is over $3000.  If there are 16 more paychecks this year, you could increase your contribution by an extra $187.50 per paycheck to use your refund by the end of the year. Additionally, many plans have a matching contribution by employers which is a a great incentive for you to start investing if you’re not already doing so. 

Did you know?

If you’re self-employed without a 401k, you can open your own 401k plan and lower your taxes by “putting away” up to $56,000 a year. Unlike a regular 401k which can be costly endeavor, a solo or individual 401k can be set up for free and operated with little ongoing administrative paperwork. If you are in a position to open an Individual 401k, you don’t have to have a certain amount to open it. An Individual 401k is great for single people who have no children. In case there is an emergency that takes place in their life, they can have the option of using an Individual 401k. 

The best way to prepare for a worry-free retirement is by preparing for it.

Whether you decide to use your refund for investing towards the retirement or paying down debt, you have made a step towards having a better future. That’s truly a lot to be proud of.

We are here to help you plan for your retirement years, contact us today to see what plan we can create for you.

References

Copyright, 2019, https://money.usnews.com/money/retirement/iras/articles/how-to-use-your-tax-refund-toward-retirement, US News and World Report

IRS.gov (https://www.irs.gov/retirement-plans/one-participant-401k-plans)

Two years ago, the current government built their own mark on the United States with what some call the most necessary and important tax reform. The retirement reform that they are planning might be the long shot of 2019 since there are four important pieces of retirement reform in legislation before Congress. Every single piece tends to have been supported by both sides in their latest drafts, on the other hand there are various regulatory advancements and state level when it comes to retirement savings that are also moving onward and upward.

The Four Extensive Retirement Acts

• Retirement Enhancement and Savings Act
• Retirement Parity for Student Loans Act of 2018
• Retirement Security and Savings Act of 2019
• Social Security 2100 Act

The RESA or the Retirement Enhancement and Savings Act was originally introduced almost four years ago, however, it was reintroduced once again this year. The Director of Economic Policy at the Bipartisan Policy Center, Shai Akbas, said this bill has been the primary objective in Congress for years.  He also said that Washington has been expecting the bill to move on at a binary level and basis. The current Congress simply thinks that this bill has the capacity to create numerous changes to the current retirement system by making it more accessible to workers in various employer contribution plans, eliminating the limitation of age on their Individual Retirement Account for contributions, eliminating several restrictions on the enrollment for 401k plans, and making it easier for them to acquire the available options of lifetime income from their retirement plan that has been qualified and accepted.

The Retirement Party for Student Loans Act of 2018 (or the RPSLA) was originally introduced last year and was referred to the Finance Committee of the Senate. In relation to the Retirement Security and Savings Act, the introduction of this act also requires to be reintroduced. The RPSLA has the ability to allow 403b and 401k plans (and other straightforward retirement plans) to build contributions that match the retirement account of an employee by dealing with student loan payments just like salary deferral contributions. An employee would focus on paying off any student debts while having their current employer contribute to the retirement plan that they selected. The strategy of the bill tends to be wide and strong in support but it is still not clear whether or not the bill can proceed as a stand-alone since it has the possibility to become attached as a provision or to combine with another retirement bill.

On the other hand, the Retirement Security and Savings Act of 2019 was initially introduced to the Senate of the United States during their final session last December. The RSSA or the Retirement Security and Savings Act is a bill that currently has some controversial factors such as increasing the savings in 401k plans and Individual Retirement Account.  This would  assist with a small employer coverage for those who work part-time, a change in required minimum distribution laws for individuals who are planning to work after the age of 71, and eliminating the hurdles for the inclusion of lifetime income options when it comes to retirement plans.

Last but not least, the Social Security 2100 Act was first introduced in the Senate this year and the Act currently has more than two hundred cosponsors in the House. Shai Akabas stated that the Act has the power to increase benefits in Social Security and to resolve the issues in funding and the affected system through an increase in taxes.

2019 could be quite a year for current and future retirees.  We are here to help you navigate through your journey.

Taxes are on the minds of many as we just passed the 2019 tax deadline.   Unfortunately, many retirees every year fail to properly account for taxes when deciding things such as budgets, withdrawal rates, and whether or not they have the flexibility to make larger purchases. So, what are a variety of techniques that can be employed which help to limit the amount of taxes you pay in retirement and keep more of your hard earned money in your wallet?

• Consider Relocating To States With Lower Taxes
• Continue To Maintain A Budget
• Consult A Tax Professional
• Don’t Forget About Quarterly Estimated Taxes
  

Consider Relocating To States With Lower Taxes

High cost of living areas often breed some of the highest salaries that allow many to retire comfortably. Unfortunately, these areas also often breed some of the highest taxes in the country. Consider moving to a more tax friendly state so that you will be able to enjoy more of your hard earned dollars throughout your golden years.

Continue To Maintain A Budget

Many of those who are fortunate enough to retire were able to do so by maintaining a strict budget over the years. While retirement means you’ll no longer have to punch a time card, it does not mean you should no longer play an active role in your finances. Budgets are perhaps more important during retirement than they are during your working years as they may need to be adjusted based on the performance of your investments.

Consult A Tax Professional

Filing your taxes post retirement can look very different than it did pre-retirement. This is because your main sources of income have drastically changed. Whereas you were once drawing your money from a weekly or monthly paycheck, you may now be withdrawing from a variety of accounts such as a 401(k), IRA, annuity and even Social Security. Each of these retirement vehicles contains its own subsection within the federal tax code and is taxed at varying rates based on many different factors. Rather than struggling through the monotony of tax code, simply place your trust in a certified tax professional that does this for a living. This way, you can rest assured everything is filed correctly which can help you avoid paying penalties over time.

Don’t Forget About Quarterly Estimated Taxes

One of the most frequent mistakes that some newly retired people make is failing to file quarterly estimated taxes. This is largely because, when you are working, taxes are taken out of every paycheck for you by your employer and filed on your behalf. This lulls some recent retirees into the false sense of security that can have them stuck with a large penalty when they attempt to file annually by the regular April 15th deadline. Some retirees should estimate the taxes they are liable for once every quarter so as to satisfy their federal, state, and local tax obligations. To keep you from forgetting, either set a quarterly reminder on a phone or computer or, if you care to keep your schedule by hand, make a note in your calendar at least two weeks prior to each quarterly deadline. The quarterly deadlines can all be found on the website of the Internal Revenue Service. 

Regardless of your current tax situation, retirement should be something that is celebrated. Stressing is something that should be left behind with your working years. BY properly planning to address any and all tax liabilities that may pop up in retirement, you can be better prepared for what’s to come and pay the minimum necessary taxes so that your hard earned money doesn’t go to waste.