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The “Not So Secure” SECURE Act

JOURNAL & TOPICS

Journal & Topics Media Group | Serving Chicago’s Great Northwest Suburbs

THIS WAY TO WEALTH: published May 2020

by CHRIS EVERETT

The SECURE Act, enacted January 1, 2020 stands for Setting Every Community Up for Retirement Enhancement.  Sounds positive, right? 

PRO: You used to be forced out of your pre-tax accounts like IRAs, 401ks, TSPs, etc. when you were 70½ to take required minimum distributions, commonly referred to as RMDs.  That was either good or bad depending on your other income.  Now, you can wait until you are 72 before taking required minimum distributions. You have until April 1st following the year you turn 72.

This only applies if you turn 70 ½ in 2020 or later.  If you turned 70 ½ in 2019, you will not be able to delay until 72. And, if you turn 70 ½ in 2020 and are still working, you can make IRA contributions.  When you reach 72 though, and are still working, you will be required to take an RMD.  For example:  Lois is 72 in 2020 and working, earning $55,000 per year.  She has an IRA worth $400,000.  In 2020, she can make contributions of $7,000, but she is still required to take an RMD.

CON: Politicians are such master manipulators. According to https://usdebtclock.org/current-rates.html, As of  May 3, 2020 every tax payer owes $314k for their share of the U.S. public debt.

The SECURE Act is just a way to get your beneficiaries to give up more of their inheritance.  This should have been called:  The Way We Get More of Your Money And Don’t Care If It Impacts You Negatively Act. 

The stretch provision has been eliminated for non-spouse beneficiaries.  That means inherited pre-tax retirement accounts must be distributed within 10 years, instead of over the beneficiary’s life expectancy.  This change will likely increase taxes for beneficiaries since distributions from these accounts are taxed as ordinary income.

While there is no distribution requirement within those 10 years, giving some flexibility on timing of your distribution, be careful.  Remember, when you take the distribution, it’s taxable.  If you are a non-spousal beneficiary, you have several things to consider.  Your own income for one.  Those distributions are added to your regular taxable income.  If you inherit $500,000, and decide to spread your withdrawals over ten years, that’s an extra $50,000 of taxable income, not accounting for growth.  That will place most beneficiaries into a higher tax bracket. If you are parents of college bound students, that inheritance distribution may cause you to lose out on need-based financial aid.  On the bright side, if you inherit after you retire, it may be a welcome ten-year supplement. 

Some beneficiaries are excluded from the 10-year rule. Spouses are because a deceased spouse’s IRA becomes the property of the surviving spouse. If you are disabled or chronically ill, you can still stretch distributions over your lifetime.  If you are less than 10 years younger than the decedent, you can also stretch distributions. If you inherit the pre-tax account as a minor child, you can stretch distributions until you reach the age of majority, which in Illinois is 18.  Imagine an 18-year-old inheriting $500,000.   God help them.

Obviously, get good tax counsel and hire a fiduciary to help you mitigate the negative impact of The Secure Act on your family.  Yes, there’s help but you need to do some strategic planning.

Open Your Financial Kimono

Journal & Topics

Journal & Topics Media Group | Serving Chicago’s Great Northwest Suburbs
June, 2020

THIS WAY TO WEALTH:

By CHRIS EVERETT

Why in the world do you need to open your financial kimono to a financial planner?

Isn’t it obvious?  It’s like going to a doctor for the first time.  They want to see everything, right?  If not, find another doctor.

The same is true for your finances.

Hire a fiduciary financial planner who can help you see what you can’t see.  Eight out of ten people I see are leaking significant amounts of money unknowingly and very unnecessarily. 

If a fiduciary helps you rescue minimally tens of thousands of dollars, and in many cases hundreds of thousands of dollars over your lifetime, they are well worth the cost.

And for those “Do-It-Yourself” investors, you can still do your own investing if you want, just get clarity about the structure.  If you are focused on investments only, you are probably seriously leaking.  I see it over and over again.

Here’s an example:  Don was a trader and he was making his wife uncomfortable.  She had seen large swings in their financial comfort over the years and could not get him to commit to a second opinion. What she was really saying is that she wanted him to stop trading.

What?  There’s no way to make a tiger change his stripes. I told her it wasn’t necessary for him to stop, and she gave me one of those very puzzled looks. 

It’s simple.  Just ask him to commit to come together to see the big picture.  It worked because he learned I was not going to try and “get” his investments under my management.

So, we had both of them pull all their data and expenses together.  I also had them do a communication profile that helps me understand how they process information, manage change, face risk and problem solve.  A little side note, these are valuable reports, but they are also great date night fodder.  They ended up using this report to create new language in their relationship which was lovely.

Back to their story.  Don was unaware of a lot. And as a self-confessed bread winner, he was apologetic to his wife when I showed them.  Here’s his list of must do’s:

  • Upgrade their liability protection because many of their assets were exposed and could have created a $3m wealth leak.
  • Fix their life insurance since it was about to run out and he wasn’t paying attention – a $3m potential wealth leak.
  • Get the beneficiaries correct – that was a rude awakening for her – a $1.5m potential wealth leak
  • Upgrade his disability insurance – if he goes down, so does the ship – with 10 years to go until retirement, a potential $4m wealth leak.
  • Diversify their asset container type to have different tax outcomes and a lower tax result longer term – a potential wealth leak of approximately $500k.
  • Finish their legal work that had been started three years ago
  • And yes, we also looked at his investments and gave him more to consider to smooth out his results.

During the course of working together, he referred me to some of his friends.  He said I never made him feel stupid.  He said it was cathartic and removed some of the stress.  He got clarity and a step-by-step process to follow as they repaired what was broken and potentially very harmful to their financial security.

I love what I do.  It is our pleasure to offer a pre-Discovery phone call or Zoom meeting if you are interested in a fiduciary relationship.

For more information or to schedule with Chris Everett visit www.EverettWealthSolutions.com or call 708-771-7777.  Everett Wealth Solutions, Inc. is a registered investment advisor providing fee-only financial planning and asset management services. Everett Wealth Solutions is located at 407 Marengo Avenue in Forest Park, IL and because of technology works with clients around the country. She’s a Retirement Shield Class Instructor and also heard on WGN, WBBM News Radio and seen on Business Firm AM Television.