Video: SECURE Act and CARES Act Provisions to Help Plan for Retirement
Joe Sachetta discusses some recent legislation that might help people plan for retirement. Both the SECURE Act, which was passed in late 2019, and the CARES Act have provisions that are intended to aid in retirement planning. Understanding these new laws can help you make the decisions that are right for you and your family.
Hello Joseph Sachetta from Sachetta Callahan. Today I want to do a brief video on some retirement planning concepts that are fairly new. Late in 2019, uh, the Congress passed the Secure Act. The Secure Act was designed to help people beef up, beef up their retirement savings and then earlier this year in response to this pandemic that we’re going through, they passed the CARES Act to try to help people get through this financial situation. What I’m going to do today is just briefly touch on just a handful of the provisions from each from each of those two acts; they’re going to be intertwined. I’m not going to mention which one is which provision cause that’s really not all that critical and I’m also not really giving you tax advice. I’m just trying to make you aware of some of these different provisions that are now available.
Cause maybe you could use them to better yourself for retirement and or get through this financial situation we’re going through right now. So let’s start out by talking about the concept of an RMD. In RMD is a Required Minimum Distribution. So in the tax law, basically the IRS lets you put your money in your IRA, 401k, tax defer it, gross tax defer it, but eventually you’re going to pay taxes when you take that out. So what they are doing with an RMD is they’re saying, listen, we’ve, we’ve waited long enough for our tax money. It’s not taking it out so we can get a little piece of the tax money into the coffers of the US and the state government. So an RMD. I’m going to talk about RMDs, required minimum distribution. Well, the good news is that late last year, one of the new laws was an RMD, which was supposed to start shortly after you turned 70 and a half.
They’ve changed that provision to now say the new age is 72. Okay? So if the way that works is if you happen to turn 70 and a half in 2019, you’re under the old rules. If you happen to turn 70 and a half after the first of 2020, you’re under the new rules. So 70 and a half old rule, 72 new rules. Uh, so that can be important for people right in that ballpark of, of age. Um, one of the other provisions that’s come down is for 2020, you don’t have to take your RMD. Now, one of the reasons they’ve done this is with this financial dip in the market and it’s recovered quite a bit, but you know, dip in the market, they thought it would be good to say, listen, don’t have to take your RMD for 2020, uh, let’s give it a chance for the market to go back up before you have to start taking money out.
So that’s, that’s an interesting thing from a tax planning perspective. One of the small points is that if you happen to be waiting to take your first RMD by April 1st so they realize it’s already after April first. So you may have already done it, but if you were waiting till April first to take your first RMD from 19, that 19 distribution, which we were required to take by April 1st of 2020 is also part of this deferral that you don’t have to take it. And we say deferral, it’s just you don’t have to take your RMD for, for 2020. You don’t have to make it up in the future yet. You will take your money out as if this you have never happened, so to speak. Um, what I’m going to do in a future video is talk to you about the concept of a Roth 401k but that’s for another time.
But, uh, pay attention to the sub point. I’ll, I’ll, I’ll hit you with that concept. Um, so, uh, some of you may have already done your RMD for 2020. We did make an attempt while the market was very high in January, early February to reach out to clients and say, Hey, why don’t we take some money off the table now, get the RMD done just in case things go down. And this crazy election year that we’re in right now. Uh, so some of us have already taken our RMD for 2020, but if you haven’t, keep in mind you don’t necessarily need to. However, if your tax situation is such that taking a distribution, this, it might make sense maybe that your income is low, so it’s taken out of the low bracket. You may want to consider continuing to do that. The other thing you may want to think about is that a Roth IRA conversion to a Roth IRA can’t be done from an RMD.
You need to do an RMD and pay taxes on it. However, because this is not going to be an RMD in 2020 if you haven’t already done your RMD, you still can’t this year, take money out of your IRA, flip it into a Roth, pay the tax and uh, have a Roth IRA for the future. And again, we’ll talk a little bit more about the advantages of the Roth in a future video. Um, some of the other changes, distributions from an inherited IRA years ago. You could stretch those out over the life expectancy of the beneficiary. Now we are limited to bringing it into income within at least a 10 year period of time. There are some exceptions to that. We’re not going to get into those exceptions here. A couple of other interesting things. Part time work is with at least three consecutive years of at least 500 hours of employment now must be allowed to participate in a company 401k.
Um, now the provision you no longer have to stop contributing to your IRA at the age of 70 and a half or even 72. As long as you continue to work and have earned income, you qualify for an IRA deductible. Nondeductible Roth IRA, uh, more on that later as well of this year because of the financial situation, people find themselves, they’ve, they, they’re allowing what they’re calling a Corona virus related distribution of up to a hundred thousand dollars to be taken out of your IRA or 401k without the 10% penalty. If you’re under the 70 and a half on this, uh, this 59 and a half, which was the, which is the age at which the penalty goes away, uh, attacks on Corona virus related distribution can be spread out over a three year period of times. You have the option of paying it all in 2020 or paying one third in each of the next three years. They’ve doubled the amount that you can borrow from a 401k to help us get through this financial situation. And they’ve also delayed the amount of time that it takes that you required to pay the loan back. So that’s just a quick little idea as to some of the new provisions other than the tax law. Again, keep in mind it’s, this is just designed to have you aware of what’s going on. Ask the questions, does this apply to me and how can it help my financial plan, my retirement plan? A couple of things. In closing, according to a January 18 bank rate survey, 71% of Americans don’t know how much they have saved for their retirement. That’s pretty interesting. And another one, according to the Fed’s household wellbeing service survey, 60% of non retirees have little or no comfort in managing their investments. Uh, I think not all of us will agree that every time it needs to be funded and we need to invest wisely to fund that retirement. So give some thought to some of the things we talked about here. If there’s some way that we can help you better prepare for retirement, we’d love to do so. Again, Joe Sachetta, Sachetta Callahan, and again, thanks for listening.