On Thursday, December 19th, the Senate passed a major bi-partisan spending bill which includes an overhaul of retirement plan rules that will affect all Americans once the President signs the bill, which he is expected to do. There are many new changes but I am going to focus on a few IRA changes that I believe are the most important that you should discuss with a Financial Planner: ​

New IRA Rules:

Required Minimum Distribution (RMD) age

Under current law, you are required to begin mandatory distributions (RMDs) from your Traditional IRA in the year at which you turn 70 ½. To confuse matters further, the IRS allows you to delay your FIRST RMD to April 1 of the year FOLLOWING the year in which you turn 70 ½. You must be careful though because you then must take your second RMD by 12/31 of the same year, thereby doubling your taxable income for the year.

If you turn 70 ½ before the end of this year, there are no change for you on RMDs; however, if you turn 70 ½ after this year, the RMD age increases to age 72. This is a welcome change as people are living longer and some are still working into their early 70s… which brings us to the next important change:

Age Restriction on making Traditional IRA contributions

Under current law, you cannot make contributions to your Traditional IRA once you reach the age of 70 ½. The new law will eliminate the provision and will allow you to continue making Traditional IRA contributions as long as you continue to have applicable taxable compensation. This is also important for the Spousal IRA benefit, which allows a non-working spouse to ALSO make Traditional IRA contributions under their Spouse’s taxable compensation.

Stretch IRA Beneficiary Changes

One of the most common questions I get is: What options do IRA beneficiaries have when inheriting an IRA? The answer can be complicated, and it depends on who the beneficiary is and if there are more than one. A ‘Rule of Thumb’ I always tell my clients is this: “The easiest way to think about it is the IRS just wants the money owed to them over the same general timeframe/lifetime.” To give an example of this, a spouse inheriting an IRA has more options at their disposal than a child because typically the spouse is a similar age to the deceased and the timeframe/lifetime in the eyes of the IRS really doesn’t change.

However, the IRS allowed one thing that bucked my ‘Rule of Thumb,’ and that was the Stretch IRA. This provision essentially allowed a  Non-Spouse Beneficiary   to start withdrawing the IRA over THEIR life expectancy! This is a big deal if the IRA Owner was 75 and the beneficiary was 30! As you can imagine, this was a wonderful planning tool as it relates to income tax planning for the beneficiary, unfortunately, under the new law, this ‘Stretch provision’ has been eliminated for anyone who inherits an IRA after 12/31/19.

Under the new legislation, if a Non-Spouse Beneficiary inherits an IRA, they will have only 10 years to withdrawal the assets from the account and pay the applicable taxes to the IRS. This will be a major topic of discussion for every Financial Planner and it should be on your radar as well. I encourage you to be proactive in the future control of your assets. Momentum Private Wealth Management can help you achieve these goals.

Other changes, summarized:

• Parents, upon birth or adoption, can make a penalty-free withdrawal of up to $5,000 from their Traditional IRA. Taxes are still owed on the distribution and you should discuss this option with your Financial Planner or CPA before doing so.

401(k) Changes

• Annuities will once again be offered as an investment/lifetime income choice in 401(k)s.
• 401(k)s will now be required to model out your lifetime income of your portfolio balance. Most do already but it is a welcome change.
• Part-time workers will now be able to participate if they have worked at least 500 hours a year for three consecutive years. 

If you are not having frequent conversations with your wealth or investment advisor about market strategies, investment management, or financial planning opportunities, you should be.  Momentum Private Wealth Management  specializes in Wealth Management as well as Comprehensive Financial Planning. Feel free to reach out to Austin directly at 512.416.8085 or austin@momentumpwm.com. You can also find out more information about MPWM at: www.momentumpwm.com .

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