{"id":194318,"date":"2020-01-14T09:06:16","date_gmt":"2020-01-14T06:06:16","guid":{"rendered":"http:\/\/ww-vb.mine.nu\/w108\/8-moves-to-consider-for-iras-401ks-under-new-secure-act\/"},"modified":"2020-01-14T09:06:16","modified_gmt":"2020-01-14T06:06:16","slug":"8-moves-to-consider-for-iras-401ks-under-new-secure-act","status":"publish","type":"post","link":"https:\/\/hameed.nwar.uk\/sa\/8-moves-to-consider-for-iras-401ks-under-new-secure-act\/","title":{"rendered":"8 Moves to Consider for IRAs, 401(k)s Under New Secure Act"},"content":{"rendered":"
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There\u2019s a new law in town, and it wants to help you improve your retirement savings outlook.<\/p>\n
The Setting Every Community Up for Retirement Enhancement Act, known as the Secure Act, has many moving parts. Some of its provisions are aimed at individual savers; others are focused on employers.<\/p>\n
Big picture, the act brings major changes to IRAs and 401(k)s, including the ability to delay distributions, reduced flexibility for inherited IRAs and penalty-free withdrawals for new parents.<\/p>\n
Here are some money moves to consider as a result of the new law:<\/p>\n
1. Plan ahead for inherited IRAs<\/h2>\n
Before the Secure Act, if you inherited an IRA from someone other than your spouse, you were required to take distributions from that account, but you could stretch out those payments over your entire life.<\/p>\n
Under the new law, if an IRA owner dies in 2020 or after, the account\u2019s beneficiaries must take all of the money out of the inherited IRA within 10 years after the year of the death. (Some beneficiaries, including spouses and minor children, are exempt from this rule.)<\/p>\n
If you inherit a Roth IRA, this isn\u2019t that big of a deal \u2014 everything comes out of a Roth tax-free. But with a traditional IRA, you must pay income tax on any distributions in the year you take the money out. (Learn more about the differences between Roth and traditional IRAs.) That could add up to a big tax hit, especially given a typical scenario, where, for example, an account owner in their 80s leaves a hefty IRA to an adult child in their 50s.<\/p>\n
\u201cThat child is getting that money at a point in time when he or she is probably in their highest earning years,\u201d says Ed Slott, founder of IRAHelp.com, based in Rockville Centre, New York.<\/p>\n
That means they\u2019re paying a higher tax rate, and that tax rate will apply to distributions from the inherited IRA, which are taxed as income. On top of that, the distributions may push the taxpayer into an even higher tax bracket.<\/p>\n
Money move:<\/strong> If you inherit a traditional IRA, have a plan in place for withdrawals to avoid a big tax bill. You can choose the tempo of your distributions \u2014 a little bit every year for 10 years, all at once or some other pace. That gives you flexibility in managing your tax bill each year.<\/p>\n
2. Rethink IRAs for estate planning<\/h2>\n
People who have hefty IRAs that they want to leave to their heirs need to consider the same provision described above: Non-spouse beneficiaries must empty inherited IRAs within 10 years. There\u2019s no way to let that money continue to sit and grow, and the tax bill on distributions may be big.<\/p>\n
\u201cIRAs have received a major downgrade as an estate-planning vehicle,\u201d Slott says. \u201cThey\u2019re still good for accumulating money but they\u2019re not good for leaving to beneficiaries.\u201d<\/p>\n
Money move:<\/strong> If you\u2019re planning to leave a big IRA to your heirs, consult an estate plan expert to assess your best options under the new law. Some alternatives to look into, Slott says, include converting traditional IRA money to a Roth, so your heirs won\u2019t owe tax on the distributions (this may mean a tax bill for you, so consult with a tax expert); investing in a cash-value life insurance policy, which can offer tax benefits; or contributing to charities from the IRA starting when you\u2019re 70 1\/2 (which can be done without incurring income taxes) and leaving other accounts to your beneficiaries instead.<\/p>\n
3. Do more Roth conversions<\/h2>\n
The new law eliminates the age limit \u2014 previously 70 1\/2 \u2014\u00a0on contributions to a traditional IRA. That means people who earn too much to be eligible to contribute directly to a Roth IRA can employ the strategy known as the backdoor Roth IRA \u2014 where you convert a traditional IRA into a Roth and sidestep the Roth IRA\u2019s income limits \u2014 for longer.<\/p>\n
Before the new law, \u201cThat strategy was not workable once you turned 70 1\/2 because the process starts by being eligible to make a contribution to a traditional IRA,\u201d Slott says. \u201cNow, they can do the backdoor Roth even after 70 1\/2.\u201d<\/p>\n
Money move:<\/strong>\u00a0If you like the idea of avoiding required minimum distributions (which are required for traditional IRAs but not Roth IRAs) and of embracing the tax-free investment growth offered by a Roth, consider a strategy for systematic Roth IRA conversions past 70 1\/2.<\/p>\n