The vibrant tree colors and the beauty of changing landscape around this time of the year always reminds me to pause and appreciate the wondrous world that God created.  The change in season can also serve as a time to refocus our attention on the important things in life regarding our faith, family, and friends.  Also important is to consider your financial well-being, now and in the future.

We are providing you with this newsletter with information on retirement plans to better inform you of the latest development on this topics.  As always, we are here to help you make sense of it all so please don’t hesitate to contact me anytime.

 

 

Over 45% of Households Have No Retirement Assets – Retirement Planning

As the Baby Boom generation has begun to retire, more attention is being paid to retirement savings and how much retirees will have to live on. In addition to Social Security, a primary source of retirement funds for decades has been pension plans, also known as Defined Benefit (DB) plans. Over the years private sector companies have shifted away from traditional DB plans to Defined Contribution (DC) plans, including 401k Plans. As employers and employees have shifted their assets from traditional pension plans to 401k plans, the onus of funding and managing these retirement assets has migrated to the individual employee. It used to be that employees were automatically covered by pension plans and funded on their behalf. Today, most 401k plans are voluntary and funded not by employers but by employees themselves.

 

Many believe that the shift from traditional pensions to 401ks has made it difficult for employees to save. When the average length of employment with a company was much longer years ago, it was feasible to have employers fund their employee’s retirement accounts. The benefit is also used as an incentive for employees. Modern day dynamics have made employees much more mobile, making 401k plans more popular and practical as retirement savings vehicles.

 

 

Source: National Institute on Retirement Security

 

 

 

Stretch IRA Rules May Change – Retirement Planning

Rules surrounding the distribution of funds from an Inherited IRA may change due to new rules being imposed. Those most affected by the new rules are retirees with generous IRA balances intending to leave funds to their children and grandchildren. Known also as Stretch IRAs, which have allowed IRA beneficiaries to stretch distributions and taxes over an extended period of time.

Both the House of Representatives and the Senate have drafted their own versions of the new rules. The House has named the legislation the Secure Act, which stands for the Setting Every Community Up For Retirement Enhancement Act. Both versions essentially accelerate the distribution and taxation of Inherited IRA funds going to non spouses.

A current rule that will remain the same is allowing a spouse to rollover their deceased spouse’s IRA to a spousal IRA and take Required Minimum Distributions (RMDs) based on their life expectancy. Inherited IRA rules will be modified by the newly imposed rules, affecting non spousal beneficiaries such as children and grandchildren, the most common types of inherited IRA beneficiaries.

For years, legislation has allowed inherited IRA beneficiaries to distribute funds over the course of decades based on the beneficiary’s life expectancy. Revised legislation will require inherited IRAs to be distributed entirely within 10 years. The distribution could be taken as intervals, at the end of the period, or whenever desired, as long as the entire account is disbursed within 10 years. Both versions do allow distribution exceptions for minor children, disabled beneficiaries, and beneficiaries not more than 10 years younger than the deceased IRA owner.

A challenge for inherited IRA beneficiaries is the tax implication of accelerated distributions over a much shorter time period. Some beneficiaries may also run the risk of falling into a higher tax bracket especially if they are working.

The Senate version allows for a stretch on the first $400,000 of IRA assets with the exceeding balance distributed within 5 years. Both versions would apply to inherited IRAs with the original owner’s death occurring after December 31, 2019.

 

At Fig Tree Wealth Management, we can help you develop a retirement plan that can provide the necessary income in the future, while making your savings last.  We believe it is never too early or late to start saving for retirement.  The sooner you start, the quicker your money can work for you.

Please email dsciortino@figtreewealth.com or call 973-805-6939 to schedule an initial complimentary meeting to discuss your goals and specific financial situation.

 

 

 

Sources:https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section
 
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