Reap the benefits of new laws.
Recent legislation makes changes to popular retirement savings plans like IRAs and 401(k)s. Here are the major changes and how you can benefit from the new rules of the SECURE Act.
You now have until age 72 before you MUST take withdrawals from your retirement accounts.
How to take advantage: Use these extra 18 months to create a plan to reduce the tax applied to your distributions. Who wouldn’t rather pay less of your retirement funds to the government!
There are no longer age limits for contributions to a traditional IRA.
How to take advantage: Consider taking a part-time job in retirement. Then you can choose to contribute to EITHER a Roth IRA or a traditional IRA.
No early withdrawal penalty to use up to $5,000 to pay for a recent birth or adoption.
How to take advantage: A new birth or adoption costs a lot! Consider using these funds to help cover some of the cost. While you will pay tax on the funds taken out of your IRA, you will not need to pay the 10% early withdrawal penalty. And even better, you can later reimburse your account without impacting your annual contribution limit.
Elimination of the stretch IRA-Beneficiaries now have 10 years to withdraw inherited funds.
How to take advantage for your estate: Not everyone is covered by this new restriction. Review your beneficiary designations to minimize the impact of this change.
How to take advantage if you inherit funds: If you inherit funds, you must now actively plan the withdrawals to minimize your potential tax hit!
Key business retirement plan changes
Many changes are also made to business retirement plan rules. Key among them are:
- Qualified part-time employees may now participate in an employer's 401(k) plan.
- Your employer can now proactively increase your participation in their retirement plan.
How to take advantage: Talk to your employer. Find out if part-time workers may participate in their savings plan and double check the amount withheld from your paycheck to ensure you are comfortable with your level of participation.
The bottom line? Actively manage your retirement accounts! If you leave it to chance, your tax bill will inevitably be higher than necessary.
Ronald Donato Jr. CFP®, MBA may be reached at (856) 667-6228 or RDonato@asfinancialservices.com.