-
-
A Roth IRA is funded with after-tax income. The IRS does not tax the same income twice, so distributions received from a Roth IRA are not taxable. On the other hand, contributions into traditional accounts are made from your income before taxes have been paid. The entire amount of any distribution from traditional IRAs are taxed at ordinary income tax rates.
-
-
-
The answer is that it all depends on the type of account. There are required minimum distributions (RMDs) for traditional IRA account holders because the IRS wants to start getting tax money each time you receive a RMD distribution. Since taxes have already been paid, Roth individual retirement account holders are not required to take RMDs.
-
-
-
This is one of the parameters that has been undergoing changes. At the end of 2019, the SECURE Act was enacted. It raised the required minimum distribution age from 70.5 to 72. At the time of this writing, there is a piece of follow-up legislation in the House that is formally called the Securing a Strong Retirement Act. It is often referred to as SECURE Act 2.0. On the Senate side, there is another measure with similar provisions that is called the Retirement Security & Savings Act. Under these bills, the RMD age for traditional account holders would go up to 75. We should point out the fact that both of these bills were introduced on a bipartisan basis, and they have widespread support. As a result, the proposed new parameters are very likely to become law.
-
-
-
Before the enactment of the original SECURE Act, there was no age limit for Roth accounts, but traditional account holders had to stop making contributions when they reached the RMD age. Now, there is no age limit for either type of account holder as long as they are earning income.
-
-
-
When and if these changes are implemented, employers would be required to enroll all eligible employees into their retirement savings plans. The employees would have the right to opt out if they choose to do so. 401(k) catch-up contributions for workers 60 years of age and older would rise to $10,000, and the change would remain in place for the life of the worker if the Senate version is enacted. In the House Bill, the catch-up contribution increase would be limited to workers that are between 62 and 64 years of age. Many workers do not contribute into 401(k) plans at work because they are strapped by student loan payments. Employers would be allowed to provide 401(k) matches for students that are making qualified payments on their student loans. There is a $1,000 savers credit for some workers that are on the lower end of the income scale. A provision in SECURE Act 2.0 would ease the requirements to make more workers eligible for the credit.
-
-
-
This is a good idea for beneficiaries of well-funded accounts, and it is especially useful for Roth account beneficiaries because the distributions are not subject to taxation. In estate planning and tax parlance, this practice is called “stretching an IRA.” That meant the beneficiaries of your IRA could elect to stretch distributions from your IRA over their life expectancy. With the enactment of the SECURE Act a life expectancy stretch is no longer possible. There is a new 10-year withdrawal rule meaning all the assets must be taken out of the account within 10 years from the date of death of the original account owner. The open-ended stretch is no longer possible, but there is no requirement to take annual distributions. You could take full advantage of the 10-year stretch by allowing the funds to grow and take the full distribution at the end of the 10-year term. That decision requires careful analysis of your specific tax situation and preferences for your portfolio structure.
-
Schedule a Consultation Today!
As you can see, legislative measures can change the playing field. Your estate plan and financial plan should always reflect the current state of affairs. This is why as estate planning attorneys and registered investment advisors we are qualified to review your plan to make sure that it is up to date.
If you are ready to schedule a review, we are here to help, and we will be more than glad to work with you to develop an initial estate plan. You can set up an appointment at our Oklahoma City estate planning office if you call us at 405-843-6100.
There is also a contact form on this site you can fill out if you would rather send us a message, and if you reach out electronically, you will receive a prompt response.
