SECURE Act Means It’s Time for an Estate Plan Review

The most significant legislation affecting retirement was signed into law on Friday, Dec. 20, 2019. After stalling for months, Congress suddenly passed several bills, as attachments to budget appropriations, as reported by Advisor News’ article “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans.”

Here are some of the key points that retirees and those planning their retirements need to know:

Changes to Age Limits for IRA and 401(k) Accounts. The age for taking Required Minimum Distributions (RMDs) has increased from 70½ to 72 years. Adding a year and a half for investors to put away money for retirement gives a little more time to prepare for longer lifespans. The change recognizes the prior limits were arbitrary, and that Americans need to save more.

However, the SECURE Act also brought about the demise of the “stretch” IRA. Americans who inherit an IRA must now withdraw the money within 10 years of the account owner’s death, along with paying taxes. Surviving spouses and minor children are still exempt. The exempt heirs can still spend down inherited IRA accounts over their lifetime, which is an estate planning strategy known as the “stretch.”

Small Business 401(k)s. The SECURE Act expands access to Multiple Employer Plans, known as MEPs, so that employers can pool resources and share the costs of retirement plans for employees. This will cut administration and management costs and ideally, will allow more small businesses to offer higher-quality plans available to their employees.

The law also enhances automatic enrollment and auto-escalation, letting companies automatically enroll employees into a retirement plan at a rate of 6%, instead of 3%. Employers can now raise employee contributions to a maximum of 15% of their annual pay, although workers can opt out of these plans at any time.

Annuities Options. The SECURE Act now allows 401(k) plans to offer annuities as a retirement plan option. Experts have mixed opinions on this. Annuities are a type of life insurance that convert retirement savings into lifetime income. However, fees are often high, and if the insurance company closes its doors, those lifetime income payments may vanish. Under the new law, employers also have what’s called a “safe harbor” from being sued, if annuity providers go out of business or stop making payments to annuity purchasers. Being freed from liability may make employers more likely to offer annuities, but that may put 401(k) investors at more risk, say consumer advocates.

529 Plans and Saving for Children. The new law expands 529 accounts to cover many more types of education, from registered apprenticeships, homeschooling, private elementary, secondary or religious schools. Up to $10,000 can be used for qualified student loan repayments, including for siblings.

Reference: Advisor News (December 23, 2019) “SECURE Act, Signed by Trump, A Game-Changer For Retirement Plans”


How to Keep Giving After We Are Gone

Americans are a generous people, giving of our time and resources, through donations and volunteering. However, according to the article “Charitable conundrum: Why do we give up on giving at death?” from the Austin Business Journal, less than one out of nine individuals include a charitable donation as part of their estate plan.

Why do we stop giving at death? We know that the causes we care about continue to work after we are gone. There are many reasons for this, but perhaps the biggest reason behind his omission is that we tend to avoid estate planning. It’s an emotional challenge, preparing in a very real way to leave the world we enjoy with our loved ones. It’s not as much fun as going fly fishing or playing with the grandchildren.

Here are a few ways to include charitable giving in your estate plan, even when you aren’t having your estate plan created or reviewed.

Charitable beneficiaries. You can make a charity a partial beneficiary of a retirement account. They can be added as a primary beneficiary or as a contingent beneficiary. These changes can be made simply by contacting the custodian of the account and following their instructions for changing beneficiaries. Note that in certain states, spousal approval is required for any beneficiary changes. You can use this opportunity to also update your beneficiaries.

There’s a tax benefit in doing this. Charitable beneficiaries do not have to pay income tax on retirement distributions, although individuals do. Depending on the income level of an individual beneficiary, an heir could lose more than 40% of the inherited retirement account to state and local taxes.

The addition of a charitable beneficiary may restrict the ability for family members to stretch the receipt of retirement assets over time. Check with your estate planning attorney to make sure your good deed does not cause a hardship for family members.

Create a charitable IRA of your own. Another way to use retirement funds for a donation, is to roll some assets out of a main retirement account into a smaller retirement account with only charitable beneficiaries. Instead of consolidating accounts, you are doing the opposite, but for a good reason. This will allow you to manage the amount of money being left to the charity and take required or discretionary distributions from whichever account you choose.

Life insurance and annuities. Both of these vehicles use beneficiary designations, so the same strategy can be used for these accounts. Typically, the annuity must still be in the deferral state—not annuitized—and the life insurance contract must allow for changes to be made to the beneficiaries, which is true for most accounts. Note that life insurance proceeds are non-taxable to individuals and charities, and annuity proceeds are generally partially tax-free to individual heirs (amount of basis in the contract).

Talk with your estate planning attorney about the optimal strategies for making charitable giving part of your estate plan. Your situation may differ, and there may be other ways to maximize the wealth that is shared with charities and with your family.

Reference: Austin Business Journal (October 2, 2019) “Charitable conundrum: Why do we give up on giving at death?”


What Seniors Need to Know About Annuities

An annuity will pay income to you for the rest of your life. However, if you are considering buying an annuity, you need to understand what you are getting yourself into, before you hand over your life savings. Companies that sell annuities would go out of business, if they did not hedge their bets.  This means that you might receive a better return on your money elsewhere, but possibly with greater risk.

We understand that many seniors worry about outliving their money, and the peace of mind of guaranteed income for life might be worth a lower return. Your happiness and financial security are essential. To help you with your decision, here are some pointers on what seniors need to know about annuities.

There Are No Mulligans

Once you buy an annuity, that money is gone forever. It will not be there, if you have a medical crisis or some other need. You hand over a sizable lump sum. The annuity company gets to invest it, however it sees fit. The company will pay you a fixed monthly amount. It is betting that you will die, before they have to pay out an equivalent return on your money.

When you pass on, the annuity company keeps the money, even though it also enjoyed the income earned from investing it. You will not be able to leave the lump-sum to your heirs.

Experts recommend that if you are set on buying an annuity, that you only put in the minimum amount to cover the difference between your Social Security check and your basic living expenses. You can invest the rest of your money, control it, spend it as you wish and leave any surplus to your loved ones.

The Purpose of an Annuity

Some companies offer annuities as a way to invest now for a payout down the road. Traditional annuities, however, start paying you regular income right away.

Financial planners recommend that if you want to invest your money to use down the road, there are better ways to do this without forking over so much money to an annuity company. If you want to create guaranteed monthly income and you are about to retire, a single-premium immediate annuity might serve your needs.

Resist Sellers Without the Highest Credit Rating

Although it might promise generous monthly income payments to you, if you hand over your savings to a company that goes out of business in a few years, you have lost all of that money. Compare quotes from the annuity insurers with the highest ratings. You can check quotes and ratings online.

Make sure that you understand all the fees and surrender charges or penalties you will have to pay, if you absolutely have to get back some of your money for a significant emergency. Find out if your heirs will get any payout, if you pass on during the first 10 or 15 years of the annuity payments. You should also lock down in writing all terms, like application fees and any other up-front costs.

This article does not offer financial advice. You should talk with your financial advisor before making an investment decision.


AARP. “5 Things You Should Know About Annuities.” (accessed January 25, 2019)