The Lowry Letter®

Week of 1/22/2020

This week’s edition is devoted to the SECURE Act, so we have tweaked the format a bit to cover some of the most important things

No more Stretch: This is the item of greatest interest to many of our clients. Non-spouse beneficiaries can no longer stretch inherited IRA distributions over their lifetime. Instead, they must completely liquidate the inherited IRA within 10 years. There are exceptions for minor children and other scenarios, but they will not apply to most. The distributions do not have to occur in even installments. We will discuss some strategies for dealing with this issue below.

Required Minimum Distributions: The age for required minimum distributions has increased from 70 ½ to 72. This will be helpful for clients who do not need income from IRAs to cover living expenses during those years.

IRA Contributions: There is no longer any age limit for IRA contributions. Previously, anyone older than 70 ½ was unable to contribute even if they had earned income.

529 Plans & Student Loans: The Act allows for a tax-free distribution from a 529 of up to $10,000 towards the repayment of student loan debt.

Birth & Adoption: The Act allows for a penalty-free (not tax-free) distribution of up to $5,000 from a retirement plan to cover the costs of child birth or adoption.

Employer Tax Credits: have been enhanced for small business retirement plan start-up expenses. This will reduce the cost to business owners considering starting something like a 401(k) plan.

Q: I had hoped that I could pass my retirement account to my kids without them losing a huge chunk to income tax. How can I help offset the taxes in the new law?

A: The new law does increase the impact of taxes in every scenario. Whether your loved ones take the distribution in pieces or all at once, it could reduce what they receive from the retirement account by a significant percentage. Here are some initial ideas to consider:

Convert some or all of your pretax retirement accounts to Roth IRAs. This may make sense if the IRA owner is in a lower tax bracket than their beneficiaries, or where the beneficiaries will be upon inheritance.
Purchase life insurance to help cover the additional expected taxes. This will make sense where the IRA owner is in good health and the cost of coverage is reasonable.

As with any financial matter, the most appropriate choice will depend on your specific situation and we would be glad to review these and other options with you.

Advisory Services offered through Lowry Financial Advisors, Inc., a Registered Investment Adviser. Securities and additional advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Advisory services offered through Lowry Financial Advisors, Inc, are separate and unrelated to Commonwealth. Lowry Financial Advisors, Inc. is located at 12921 SW 1st Rd, Suite 215, Tioga, FL 32669. 352-333-7990

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