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Walk through The Secure Act with Elder Law Attorney, Greg McIntyre

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The Elder Law Guy walks you through the key aspects of the Secure Act and breaks down what you need to know in this short, informative video. Related Article: https://mcelderlaw.com/the-secure-act


Greg McIntyre:

Hey guys. This is Greg McIntyre, the Elder Law guy helping seniors protect their assets and legacies. It’s one of my favorite times in the evening when the Roomba is buzzing in the background.

Greg McIntyre:

My buddy, cleaning the floors. Not a creature stirring, but the Roomba and me.

Greg McIntyre:

I just finished writing an article and published it on the Secure Act. The Secure Act was passed into law by the president on December 20th of 2019 and it sounds absolutely amazing, the Secure Act. It’s going to make us more secure. It actually is meant to inspire employers to have a tax deduction and discounted way to implement retirement programs like 401(k) or IRA programs. However, it also severely impacts the way that we might plan or save for retirement. So I would urge you to go to mcelderlaw.com and check out the Secure Act. What you need to know. I actually wrote this and pulled it out of a magazine article I am writing right here. Here’s the magazine article, a spotlight in the magazine called the Secure Act. What you need to know.

Greg McIntyre:

I pulled that out. That is true. Under the Secure Act, there could be significant loss or reduction of actual savings that are passed to a child beneficiary. There’s a few key points and key things that Secure Act affects, and I’m going to show those right now. Key points, age of minimum required distributions. Required minimum distributions, RMDs. That age has now been pushed from that really arbitrary age of 70 and a half to 72. You can now not take deductions until you are 72 starting January 1 of this year. You don’t have to take them at 70 and a half. So as you take deductions out of qualified assets like 401(k)s or IRAs, you have to pay income tax on them. If you pass that IRA because you pass away to your spouse as a beneficiary, then your spouse can spread his or her distributions over their lifetime.

Greg McIntyre:

That leads into what is called a stretch IRA strategy when passing an inherited IRA or a beneficiary to your children, children or grandchildren. How about non spousal inheritors? People who are beneficiaries who aren’t a spouse? And/or say next to kin, say a child, for example? Could take previously, could also spread their distribution over their lifetime. Well, that was significant because, number one, you might have a child that was a spendthrift. You wanted to make sure they didn’t get a lot of money at one time, and then that money could be spread to be taken over that child’s lifetime. Number two, when that child took those distributions the same as you once you’re now 72, previously 70 and a half, once that child starts taking those distributions, then they’re taxed at their income tax bracket for that year.

Greg McIntyre:

I mean, you could be talking about a tax of, I think the highest federal bracket right now is 37%, but really could get into, say 37 to 40-plus percent in tax. I’m talking about taking away that retirement savings that you’re trying to pass to a child and sending a large portion of that to the government. So because you have a child now has to take that distribution over a 10-year period, has to take that distribution over the 10-year period. That’s a huge change. A non-spouse IRA beneficiary must take distribution within 10 years. Traditional IRA owners may keep making contributions indefinitely. So you can keep contributing to your IRA, which is I think a nice bonus. You can keep contributing to your retirement longer even after you start taking distribution.

Greg McIntyre:

So you can keep putting retirement savings that can be invested. I mean, the whole point of a traditional IRA or 401(k) or a qualified annuity, the whole point of … Let’s say an IRA 401(k) was to allow pretax money to go in, it’ll be a larger amount than you would put in post-tax after it was taxed as income. Actually employment taxes were taken out. All the payroll taxes, so to speak, were taken out. After those were taken out, it would be a smaller chunk. It would grow slower, but with a larger amount you can grow faster. Plus, you don’t get taxed on your gains as long as you don’t take it out early. There’s no penalties, you don’t get taxed on gains. You can’t take any money out of an IRA 401(k) before 59 and a half. That’s still the same. But you have to start taking the required minimum distributions at 72 now instead of 70 and a half.

Greg McIntyre:

The trade off with having those large growth gains and not having to pay tax on the gains is that you still have to pay income tax that comes out. Therefore with a child now, they could severely be impacted by having to pay those income tax because of elevated distributions because of taking it over a 10-year period as opposed to their lifetime. Now, you could use what’s called an accumulation trust. Accumulation trust could hold the money and give it to the child over their lifetime. You still take a tax hit, but for the cash out of the IRA or the qualified benefit, the qualified fund. But you could make sure that that child doesn’t get a large amount of money at one time, spread that still over longer than a 10-year period. Could also use disclaimers if it were going into trust and the trust was a beneficiary. There’s specific ways to set that up.

Greg McIntyre:

The trustee in writing can disclaimer the cash benefit that’s coming to a child and pass that to the next generation, and say, “skip that generation.” Because, maybe the child was going to be at a higher tax bracket or would put the child at a higher tax bracket. The child decided to forego that to say, “Give to a grandchild to pay for that grandchild’s college and other things,” who would be in a bottom tax bracket starting out. So there’s a lot of different ways. There’s some exceptions for disabled adults, minors. They don’t have to take over the 10-year period, but minors do. The 10-year period does apply once they reach 18, so there’s some quirky exceptions in there, but they’re very narrow.

Greg McIntyre:

So really, this changes the way we’re thinking about now distributing assets to children or non-spouse inheritors. Especially from a financial planning aspect, but also from a legal aspect and planning aspect as well and whether we’re going to use things like accumulation trust and also disclaimers to give some flexibility and control there to maximize your … How about minimize your tax burden and the tax burden on your beneficiaries and maximize the amount that you save that’s going to actually get to the beneficiaries? So if you have any questions about the Secure Act, please feel free to call our office or go online and chat with us or contact us on one of our forms on our website.

Greg McIntyre:

You can reach our office by dialing (704) 749-9244. Or, again, go online to mcelderlaw.com. That’s (704) 749 9244 or online at mcelderlaw.com. The Secure Act, I don’t know that it makes us actually more secure. I think it gives us sometimes some more problems. Plus, it’s troubling when the federal government can go back and rewrite the rules, even though we’ve already given our money based on what we thought the rules were. But that’s the deal, so the Secure Act. Check out the article on mcelderlaw.com on the blog.

 

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