Last Week’s Question of the Week: How long does the average Bull Market last?
ANSWER: On average, bull markets last 4.5 years.
HOST: Today you’re going to fill us in on the passing of a new act just passed by congress at the end of the year that does have some interesting ramifications for all of us as we plan for our retirements?
KLAAS FINANCIAL: Yes. On December 20, 2019, President Trump signed into law the SECURE ACT (Setting Every Community Up for Retirement Enhancement Act). The law is mainly intended to expand opportunities for individuals to increase their retirement savings. What does this mean?
No more age restrictions on traditional IRA contributions. Prior to the law, you could NOT make IRA contributions after the age of 70.5 or any later year. So, for tax years beginning in 2020 and beyond, you can continue to make contributions beyond this age as long as you have EARNED INCOME. There is no age restriction on Roth IRA contributions, and this remains the same under this new act.
The SECURE ACT increases the age that you must first BEGIN taking RMDs from age 70.5 to 72. However, if you turned 70.5 in 2019 or earlier, you are unaffected and need to continue taking your RMDs as you currently are. KEY POINT: If you turned 70.5 in 2019 and have not taken your initial RMD for that year, you must take that RMD, which is for the 2019 tax year, by no later than 4.1.2020 or face a 50% penalty on the shortfall. You must then take your 2nd RMD by 12.31.2020 or face a 50% penalty on the shortfall. As under prior law, if you are still working after reaching age 72 and you don’t own over 5% of the company, you can postpone taking RMDs from your employer plan until you retire.
Keep in mind that for those retirees who already are drawing and draining their IRAs and other pre-tax accounts for regular income needs, they are unaffected by this changeas long as they are taking at least the minimum by age 72.
HOST: What about rules for people inheriting IRAs…. were there changes with this as well?
KLAAS FINANCIAL: Yes, this is where we are seeing another pretty significant change in the inheriting a parent’s IRA or 401k. This change affects certain non-spouse beneficiaries who wanted to keep inherited accounts open for as long as possible to reap the tax advantages. The net change is that the SECURE ACT requires most non-spouse IRA and retirement plan beneficiaries to drain inherited accounts within 10 years after the account owner’s death.
Key point: According to the Congressional Research Service, by putting the lid on the Stretch IRA strategy and by implementing the new law it has the potential to generate about $15.7 billion in tax revenue over the next decade.
First of all, to be clear, this change will NOT affect you if you are a so called “designated beneficiary” which would be:
The surviving spouse of the deceased account owner,
- a minor child of the deceased account owner
- a beneficiary who is no more than 10 years younger than the deceased owner
- a chronically-ill individual.
Nothing is changing in how you will be able to distribute the IRA. You will be able to continue to take RMDs over the life or life expectancy of the eligible designated beneficiary beginning with the year following the year of the account owner’s death.
NOTE: This law does not affect account beneficiaries who want to quickly drain inherited accounts.
HOST: What about making qualified charitable distributions? Is this affected by the new law?
KLAAS FINANCIAL: There is a change for IRA qualified charitable distributions. After reaching age 70.5 you can still make qualified charitable contributions of up to $100,000 per year from your IRAs. These contributions are called QCDs. The age at which an individual can make a QCD was not changed by the new law. The change that is effective and beginning in tax year 2020, the $100k QCD limit is reduced by the aggregate amount of deductions allowed for prior tax years. In other words, deductible IRA contributions made for the year you reach age 70.5 and later years can reduce your annual QCD allowance.
HOST: Switching gears now in our Money in Motion Listener Question Corner, one of your listeners, Amy submitted this question: I am turning 65 in May of this year, how soon can I sign up for medicare?
KLAAS FINANCIAL: Thanks Amy for the question. If you’re eligible for Medicare when you turn 65, you can sign up during the 7-month period that begins 3 months before the month you turn 65, Includes the month you turn 65 and end 3 months after the month you turn. If you already receive Social Security benefits when you reach 65, you’ll automatically get enrolled in Medicare. If you haven’t started Social Security yet, but you’re approaching your 65th birthday, now’s the time to apply for Medicare.
You can apply online at medicare.gov or over the phone. You’ll need to pay attention to specific enrollment deadlines and plan details to make sure you’ve gotten your benefits set up correctly.
Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.