After a dip the previous week and a volatile start, the market continued to new heights last week, setting new all-time highs. While we expect continued volatility, meaning lots of daily ups and downs, the third year of any presidential cycle is typically a good year for stocks, and economic data continues to point towards a strong year.
Congress also gave us a gift to start the year in the SECURE ACT, new legislation that impacts retirement accounts.
If you own a small business, the legislation created pooled employer plans, which should make things easier and less expensive for a small business to offer a 401(k) to their employees. There were also changes made to safe harbor elections and the tax credit for plan start-up and administrative costs.
If you’re still working past the age of 70 ½, the SECURE ACT allows you to continue making IRA contributions.
It also pushed the starting age for Required Minimum Distributions, or RMD’s, to age 72. This only applies to folks who have not started taking RMDs yet. If you turned 70 ½ before the end of the year, you still need to start those distributions.
The biggest change in the SECURE ACT involves Stretch IRAs. Previously, if you inherited an IRA from someone other than your spouse, you could stretch the distributions from that account over your lifetime. You had to take RMDs based on your life expectancy, but the majority of the money could stay in the account and continue growing tax deferred. With the new law, all inherited retirement accounts must be full distributed within 10 years, with a few exceptions for minor children or people with significant disabilities.
This can have a huge tax impact, as a large inherited IRA now has to be fully taxed within 10 years. You should speak with your tax and financial advisors to see if a Roth conversion makes sense. Gradually moving money from a traditional to Roth IRA not only reduces the eventual impact on your heirs, it also affects your retirement. High taxable income in retirement impacts the amount of your social security that is taxed and can cause your Medicare premiums to double or triple.
The elimination of the Stretch IRA can also impact conduit trusts established for your heirs; these are trusts designed to hold retirement accounts and are often set up in a will when you have minor children. Speak with your estate attorney about the potential impact on your estate plans.
At CovingtonAlsina, we know that finances can be confusing, or overwhelming. Taxes, insurance, retirement, college. That’s why we’re here. We use an empathetic, jargon-free approach to help our clients make wiser financial decisions. If you’re interested in learning more, our calendar of educational events for 2020 is up on our website, www.covingtonalsina.com/events.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
This information is not intended to be a substitute for specific individualized tax advice.
The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.