It seems like the entire world has revolved around the coronavirus for the past two months. It has changed our way of life, the way we work, and even the way we interact with friends and family.
Believe it or not, there have been other new developments in 2020 besides coronavirus. One of those new developments could have a big impact on your retirement. It’s the Setting Every Community Up for Retirement Act, also known as the SECURE Act. It was signed in December 2019 and became effective as a law on January 1, 2020.1
The SECURE Act makes big changes to many areas of retirement planning, including IRA contributions, 401(k) investment options, and even things like required minimum distributions (RMDs). It is likely to impact all retirees, but it could have significant benefits for women. Below are three ways in which the SECURE Act could help women in their retirement planning:
One of the biggest changes in the SECURE Act is the adjustment of the RMD age from 70 ½ to 72.1 RMDs are mandatory withdrawals you must take from your 401(k), IRA, and other qualified accounts. The withdrawals are taxable, and there’s a steep penalty if you fail to take an RMD.
The RMD amount is based on life expectancy and your account balance. Generally, as you get older, your RMD increases. The same life expectancy formula is applied to both men and women, even though women generally live longer than men. According to the Social Security Administration, the average 65-year-old man will live to 84 while the average woman will live to 86.5.2
The SECURE Act doesn’t change the life expectancy formula, but it does reduce the amount of time that an individual will be forced to take RMDs. Retirees can start taking these distributions later, which could be especially helpful if your goal is to leave assets behind for your loved ones.
Guaranteed Income Options in 401(k) Plans
Another big change in the SECURE Act is the way it impacts investment options in 401(k) plans. The law makes it easier for 401(k) plans to offer annuities that provide guaranteed* lifetime income. The guarantees* vary by product. However, the general idea is that the funds allocated to the annuity option are used to create a guaranteed* income stream when you retire. You get the income for life, no matter how long you live.
Again, this could be beneficial for women because of their longer life expectancy. One of the biggest challenges in retirement planning is generating income that will last for life, especially if you live into your 90s or beyond. This option could provide you with certainty and a predictable income, no matter how long you live.
401(k) Access for Part-Time Employees
The SECURE Act also made 401(k) plans more accessible for part-time employees. Under the old rules, an employee needed to work 1,000 hours in a year to be eligible for 401(k) participation. Under the SECURE Act, an employee can be eligible by either working 1,000 hours in one year or 500 hours in three consecutive years.1
For a variety of reasons, more women work part-time than men. According to the Bureau of Labor Statistics, only 12.4% of male workers in the United States were part-time in 2016. More than 25% of female workers were part-time over that same period.3 This change in rules now allows those part-time workers to use a 401(k) to save for retirement.
Ready to see how the SECURE Act impacts your plans for retirement? Let’s talk about it. Contact us today at Scott and Associates of Texas. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
*Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. .. 20043 - 2020/4/28
The stock market crash of 1987. The tech bubble in the early-2000s. The financial crisis of 2008. And now, the coronavirus pandemic.
What do all of these things have in common? They all involve sharp market downturns that end a bull market and trigger a bear market. For many investors, these events create anxiety and worry about the long-term ramifications.
These events all share something else in common. They offer potential opportunities.
In a difficult time like this, it can be hard to see opportunities, but they do exist. Of course, not all opportunities are right for everyone. Your strategy and decisions should be based on your specific needs, goals, and risks.
However, it’s possible that you could take action today to improve your financial future. Below are three examples of potential opportunities. A financial professional can help you determine the right course of action for your long-term strategy.
If you have seen your portfolio suffer since late February, you are not alone. As recently as early February, we were still enjoying a strong economy. Between Friday, February 21, and Tuesday, March 16, the Dow Jones Industrial Average (DJIA) dropped by 35.87%. Since that low point, the market has recovered somewhat. However, the DJIA is still down 16.4% year-to-date.¹
If you are considering a change in strategy, you also may be able to take advantage of a potential tax deduction. A change in allocation may require you to sell assets that have declined in value. While realizing a loss is never a good outcome, you could qualify for a tax-loss deduction.
Of course, this doesn’t mean you should realize losses simply for the tax deduction. Your decision should be guided by your long-term goals. A financial professional can help you determine how best to move forward.
Roth IRA Conversion
Do you hold a significant amount of retirement assets in a traditional IRA? One of the benefits of a traditional IRA is that you realize an upfront deduction for contributions. However, that also means that your future distributions are taxable as income.
You may prefer to use a Roth IRA, which allows you to take tax-free withdrawals in retirement, assuming you are 59 ½ or older, and the account is at least five years old. You can convert your traditional IRA into a Roth, and now could be the time to do so.
When you convert a traditional IRA to a Roth, you pay income taxes on the converted amount. If you have seen a decline in your IRA over the past couple of months, you now have a reduced balance. That means the tax exposure from conversion would be lower today than it was two months ago.
It’s also possible that, like millions of Americans, you have been laid off, furloughed, or that you have accepted a pay cut. It’s possible that your income for 2020 will be lower than it has been in years past, which means you may be in a lower tax rate. Again, this could reduce your tax exposure in a Roth conversion.
Roth conversions aren’t right for everyone. However, if you have been considering one, this may be the right time.
Investing at Discounted Prices
It’s never a good idea to try and predict the market’s direction, especially in the short-term. Investment decisions should always be guided by long-term strategy and specific goals and needs.
However, there is no denying the fact that many assets are currently trading at prices substantially reduced from two months ago. If you have cash available to invest and have the risk tolerance to withstand potential volatility, this could be a good time to revisit your strategy.
It’s always wise to hold six to twelve months in liquid, risk-free emergency reserves, even if those accounts pay very little in interest. However, if you have other funds that aren’t needed for emergency reserves, you may want to consider how best to use them in the long-term. Investing at discounted prices may allow you to more fully participate in a future recovery.
As always, your decisions should be based on your unique needs, not generalized advice. Let’s talk about it and implement the right strategy for your goals. Contact us today at Scott and Associates of Texas. We can help you analyze your needs and goals and find the right opportunities. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20050 - 2020/4/29
William T. Scott
Scott & Associates of Texas, Inc.