What You Need to Know About the SECURE Act

Today’s Wisdom:

The SECURE Act officially took effect when calendars turned to 2020 and it will create significant changes for retirement accounts moving forward. Find out what you need to be paying the most attention to and how it will affect your financial planning.

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What You’ll Learn:

When the SECURE Act was passed near the end of 2019, it marked the first significant changes for retirement accounts in quite some time.

Now that the legislation has taken effect, it’s important to understand what’s changing and how that will impact your investments this year and beyond. On this episode of Money Wisdom, we’ll discuss two key areas where changes were made and what this means for you. Plus, we’ll talk rental income, debt, and Social Security during the mailbag segment.

 

The SECURE Act

You’ve probably heard by now that the SECURE Act took effect at the start of 2020 but how much do you know about the specifics of the new legislation? We’ve talked about it a little in the past year, but today we’ll get into the specifics to help you understand how your retirement plan will be affected.

The two main areas we’re paying attention to are the Stretch IRA and the RMD age. First, the Stretch IRA is set to go away and that could have a huge impact on your legacy plan. If beneficiaries aren’t allowed to spread out their withdrawals, it will end up costing quite a bit in taxes. But this opens the door for Roth conversions, which we’ll talk more about on the show.

The second area is the Required Minimum Distribution age, which is changing from 70.5 to 72. That means you’ll have some more time to build your retirement portfolio before you have to start withdrawing.

So let’s dive into what all this means to you and your plan

[0:45] – We have to talk about the SECURE Act now that it’s taken effect in 2020.  

[1:49] – What is a Stretch IRA and what does it mean that it’s going away?

[3:38] – This brings Roth conversions into play a lot more.

[4:43] – Let’s look at some numbers to see how this would look in real life.

[8:26] – This really might impact the ability to pass wealth on to future generations. Inheritances might look a lot different soon.

[9:45] – The other important component to the SECURE Act is the change of the RMD age.

[12:26] – How we’ll help clients make adjustments with this new legislation.

 

Mailbag Questions

Today we have three great questions that hit important topics. The first asks about pulling money out of an IRA to help pay cash for a new rental property. This probably isn’t a great idea, but we have a great discussion about rental properties, considerations you should be making, and alternative options for getting the money you need.

The second question comes from someone carrying debt but has used that as an opportunity to save more money towards retirement. Joel gives his opinion on this strategy and whether it would be better to start paying off more of the debt.

And finally, we get a question about Social Security from a listener that is considering taking it earlier due to health concerns.

[14:19] – Mailbag Question: I found a great deal on a townhouse I’d like to buy and turn into rental income. I’d like to pay cash for it but that would require taking $70,000 out of my IRA. Is that a bad idea?

[18:06] – I’ve never been in a hurry to pay off debt. I never pay extra on my mortgage, never paid cash for a car. I know debt is bad, but it’s allowed me to save more towards retirement that I couldn’t have otherwise. Am I missing something here?

[20:02] – I just received a medical diagnosis that will shorten my life by a number of years. I’m 64 and planned to wait until 70 to start Social Security but I think I should start it now. Do you agree?

Thanks for checking out our latest episode of the Money Wisdom podcast. Please subscribe if you have a minute. We’ll talk to you again soon!

 


Final Thoughts:

“This is a really, really big deal and it completely changes the roadmap when we look at should we convert money over into a Roth IRA.”  

– Joel Johnson, Money Wisdom Podcast

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