One of the positives of having your birthday in mid-January is it gives you the opportunity to reflect back on the prior year (after the hoopla of the Holiday Season and Best of Lists has worn off of course) while simultaneously appreciating the benefit of being a year older and more mature to plan for the year ahead. Let’s not also forget the other positive being January provides good weather for napping. I really should change my birthday to the sunny days of mid-July!

Heading into 2019, financial markets were on edge and the year ahead looked treacherous. Prognosticators were predicting doom and gloom and signs of the Big R-word (Recession) were flashing. Social and political crises were aplenty. Nevertheless, 2019 proved to be a wonderful year for investment returns. As famous Fidelity fund manager, Peter Lynch, said, “More people have lost money anticipating (market) corrections than in actual corrections.”

2020 brings not only hope and a renewed sense of purpose but also a new law pertaining to taxes and estate planning. The Setting Every Community Up for Retirement Enhancements (SECURE) Act became effective on January 1, 2020 and brings some major changes to 2020 planning and beyond. Some of the highlights:

  • Age to Begin Required Minimum Distributions (RMDs) – if you turn 70 ½ after 1/1/2020, then first RMD is delayed till the year you turn 72. Under the previous rules, RMDS started in the year you turned 70 ½.
  • Elimination of the “Stretch IRA” for Beneficiary of IRAs and Retirement Plans – If you are a non-spouse beneficiary of IRA/Roth IRA/Other Retirement Plan then you must deplete the entire account balance by 12/31 of the 10th year of original participant’s passing. Exceptions are still in place for spouses, minors, disabled individuals and beneficiaries less than 10 years younger than the original participant. Under the previous rules, non-spouse beneficiaries could take distributions based over their life expectancy and “stretch” the distributions. This provision will be a major area of planning since the facts of your finances and potentially your children/grandchildren will need to be reviewed. Does a Roth Conversion make sense?
  • Traditional IRA Contribution Age – no longer any age limit to make an IRA contribution as long as the account owner has earned income. Under the previous rules, the year account owner reached 70 ½ was the limit.
  • Penalty-Free Withdrawals for Birth or Adoption Expenses – up to $5,000 can be withdrawn penalty-free from a retirement plan or IRA to cover birth or adoption expenses. However, the account owner still has to pay ordinary income taxes on the withdrawal. Under the previous rules, a 10% penalty on the distribution applied.
  • Additional 529 Plan Eligible Expense – 529 Plan funds can always be withdrawn tax-free to pay for qualified higher education expenses, and now, up to $10,000 over your lifetime can be withdrawn to pay down student loans. Important to note in 2018, a law passed allowing up to $10,000 per year to be used towards K-12 educational expenses.
  • Annuities in 401(k) Plans – more employers will offer annuities via retirement plans

While much is still to be determined on how the SECURE Act impacts each of us, one thing is certain and that is we are here to discuss it with you. Looking forward to another exciting year!