Articles Posted in Retirement Accounts

On December 29, 2022, the SECURE 2.0 Act was passed in an effort to make retirement planning easier for federal retirees. The Act, however, contains myriad provisions and may be difficult to comb through for someone looking to adapt their retirement plans to take advantage of the more lenient new rules. Staying abreast of legislative changes to retirement requirements and benefits can help ensure there are no surprises when the time comes to begin withdrawing retirement funds. And knowing how to plan around certain requirements during early retirement planning can ensure your nest egg is as large as it needs to be to meet your needs when your retirement day approaches.

Required Minimum Distributions Changes

Many of the SECURE 2.0 Act’s new provisions are around required minimum distributions or withdrawals that must be taken from certain retirement accounts, such as traditional IRAs or Thrift Savings Plans, when the account holder reaches a certain age. These rules stand to make sure retirement accounts are not used as wealth transfer vehicles but are instead used by a retiree during their lifetime.

The act now delays the start age from 72 to 73 starting in 2023, and it will increase again to 75 in 2033. Financial planners caution that this may not be beneficial for tax purposes, though on its face, it seems more lenient. And for individuals close to these minimum ages, more time to plan and strategize could be a benefit. Always conduct a financial planner and your attorney when planning these withdrawals.

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Many individuals look forward to the day when they retire and spend their days relaxed and free—be it at home reading a book or tanning on a beach. However, they may not think about the planning they need to do beforehand to actually enjoy their retirement. Most people think about the most important aspect—saving money—but they do not think about other critical aspects of estate planning. Some of these steps are simpler than others but all are crucial financial preparation in order to be comfortable in retirement. Below are these vital steps Coloradans should accomplish as they prepare for retirement.

Paying Off Debt

While saving for retirement is extremely important, paying off any outstanding debts is just as critical. This includes debts from credit cards, mortgages, and student loans. Otherwise, the money the individual is saving for retirement will be eaten into by further debt repayment over the years. Many people overlook this crucial step and paying off debts sooner than later will leave more money in the future for retirement pursuits.

Retaining Health Insurance and Other Forms of Insurance

When people near retirement, it is essential they focus on the health insurance they have—both now and in the future. Especially are individuals age—and more health issues arise—they tend to rely on health insurance more than before. Beyond qualifying more Medicare when a person reaches 65 years old, many estate planning attorneys recommend having supplemental insurance as well. This can be one of many options, including a Medigap policy, a Medicare Advantage plan, or—if the individual was a federal employee—their federal employee health benefits.

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In an effort to provide Americans with access to retirement savings, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act created profound retirement and tax reforms resulting in myriad implications for American workers. The changes should prompt individuals to reevaluate their Colorado estate plan documents to ensure a happy and secure retirement.

The SECURE Act requires Colorado certain employers to offer their employees a retirement savings plan or enroll their qualifying workers in a state-sponsored retirement account. The Act applies to most employers besides small private and nonprofit entities. Significant changes include 401(k)s, IRAs, and 529 college savings accounts. The ACT offers small Colorado business owners a tax credit for starting a workplace retirement plan. Further, new parents receive a benefit in the form of a penalty-free $5,000 withdrawal from a 401(k) or IRA following the birth or adoption of a child.

One of the most significant changes involves the elimination of the “stretch” option for retirement accounts. Under the Act, the majority of non-spouse beneficiaries must withdraw the balance of any inherited retirement accounts within ten years. Beneficiaries must adjust their withdrawal plans to avoid a drastic increase in their tax bills. Before the change, beneficiaries of inherited retirement accounts could opt to take distributions over their lifetime. The change may result in a change of a beneficiaries tax bracket, thus receiving more minor of the funds in the account than initially planned.

Most of us think, “thick stack of legal papers”? Ugh! “No, thank you!” But when it comes to estate planning, it’s just the opposite. You see, legal problems in estates are often caused not by bad estate planning, but by Failure-To-Plan (“FTP”), even in estates where the person or couple thought they’d done everything right.

FTP is insidious and you don’t even know if you have it because it’s invisible! It’s the absence of a clause your estate plan needs after you’re gone and can’t add the clause anymore. It’s the missing Asset Protection Trust for the divorcing child. It’s the Special Needs Trust that they intended to get to but kept putting off because they couldn’t bear to truly face how serious their son’s mental illness was.

Avoidance of FTP is why our estate planning documents are so thick and why we include so many of them. I’ve heard clients say, I can’t even count how many times, “I just want a simple plan.” Sometimes I respond, “When? Simple now? Or Simple later?” There are exceptions, of course, but in general: the easier it is to plan now, the harder it will be to administer later.

As ever, your watchdogs, Bennett and Diedre Braverman were glued to the national scene when President Obama gave his State of the Union address in case anything of value fell out for us to tell you about.

This won’t be of interest to many of you, I’ll admit right up front. It’s a niche blog post. But I couldn’t ignore it because for those of you who own businesses or have children launching into the workforce, this could be great news!

If you don’t offer a traditional retirement plan, until now, you’ve been at a loss, without tools to help your lowest-wage earners with retirement.

First, let me share the fabulous news about “Retirement Accounts” then the bad news that I have to tell all the people who ask me about investment choices in a Retirement Account.

Tax-free Versus Tax-deferred

Retirement Accounts – 401(k)s, (403(b)s, IRAs and others – have wonderful tax advantages. Some allow you to put pre-tax money into an account, which then grows tax-free for years or evendecades until you withdraw it. When you withdraw it, you pay tax on the withdrawal. So they aren’t “tax-free”, they’re “tax-deferred.”

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