As we near the end of the year, Congress must pass a budget to prevent a government shutdown.
Just like other bills that Congress pass, this one includes changes to existing laws. This bill includes a piece of legislation that affects retirement planning called ‘Setting Every Community Up for Retirement Enhancement’, also known as the Secure Act.
The following is a list of some changes:
- Required minimum distributions will start at age 72 instead of 70.5. This is positive as it extends the amount of time before the government contacts an additional 50% of your retirement money if you don’t take enough out at the right time.
- No age limit on IRA contributions. Of course! The government would love to gain control of more of your money.
- Stretch IRAs are reduced from lifetime to 10 years. This means that the beneficiary of an IRA will have to spend it or transfer it to another vehicle wherein all the deferred taxes will have to be paid within 10 years. If your strategy was deferral, this destroys that strategy.
- $10,000 of 529 plans qualify to pay student debt. This is positive. However, there are alternative strategies that work like 529 plans without the penalties, tax implications and restrictions for non-qualified use.
Unfortunately, this bill does not address the some of the biggest issues we face regarding retirement planning such as strengthening Social Security and pension programs. Once again, the government is kicking the can down the road with regards to fixing retirement plans.
$23 Trillion US national debt
$74 Trillion US TOTAL debt
See for yourself here
The government uses tax revenue to pay off debt. When you plan for retirement the most important question that must be asked is; Are taxes going to be higher or lower in the future? Answering this question will help you determine whether to save in a tax deferred plan (IRA, 401k, SEP) or a tax now plan (Roth IRA, LIRP, private pension, 7702).