There was a lot of fuss around the most recent COVID-19 stimulus bill, which President Trump signed into law shortly after Christmas. While most of what is in the bill is clear at this point–it has been about three weeks since it was signed–one area that seemed to produce at least a little confusion was whether the bill extends tax breaks from Coronavirus-related distributions (CRDs) from retirement accounts. I have written about CRDs in past blogposts over the past year. As you may recall, CRDs allowed you to take a aggregate distribution of up to $100,000 from your retirement accounts in you were directly impacted by COVID-19 (i.e. you were diagnosed and had to quarantine or you were laid off due to Coronavirus restrictions) and that the distribution was not subject to the 10% early withdrawal penalty and you have three years to pay back the distribution. CRDs were designed to help those in financial distress as a result of the Coronavirus pandemic and was most likely a lifeline for many struggling Americans in 2020. Back to the latest Stimulus package. It was reported by at least one news source that the new stimulus package extended CRDs into 2021. I want to be clear here that such information is incorrect and that the new legislation did not carry CRDs into 2021. This is important because if you planned on taking a CRD in 2021, you can’t and also as a reminder to do some research and read up on any Coronavirus-related relief legislation to see how it might impact you. Now, I don’t know what the future holds and depending on how this pandemic continues to play out, the next administration might put CRDs back on the table, but I have heard no definite inklings about that, I’m just saying anything is a possibility at this point. If you took a CRD in 2020 and want to figure out how to pay it back or find yourself in further Coronavirus-related financial hardships in 2021, you will want to speak with a certified financial planner or wealth manager to figure out what the best moves might be best for you.
Now that we are over a week into 2021, now is as good a time as ever to make sure your retirement plan paperwork is current and reflects your personal choices. Mostly, I would worry about your beneficiary designations. Has anything changed with your beneficiaries over the past 12 months? Have you had any major life changes that may require updates to your beneficiary listings? If so, don’t delay in making updates. The sooner you do so, the better. Plus, it’ll be one less thing you need to worry about. Also, this is a good time of year to check on your investments and make any tweaks you feel are necessary. Of course you can also just leave things as is if you find that changes are not needed. If you have a financial advisor or wealth manager, the beginning of the year is also a really good time to check in with them and talk about both your long-term and short-term goals. You might want to set a few goals for the year and make sure you are on the right path with the goals you have that may take years to reach. If you find that nothing needs to change, then you at least have the comfort of knowing you checked.
Welcome back, everyone! I hope you all had a wonderful, safe, and relaxing holiday season. Now that we are a few days into 2021, it’s a good time to start putting your financial plans for 2021 into action. What are your goals for the next 361 days? It doesn’t have to be anything crazy. It could be something as big as purchasing a home or making a push to finish paying off a mortgage or car loan. Or maybe it’s something smaller like saving up a certain amount of money or cutting back on certain expenditures. Or maybe you just want to get better with your budgeting over the next 12 months. Whatever your goals/plans are, you’ll find it easier to reach them if you get started early. If you are looking to pay something off or save up a certain amount, then you may want get started by looking at what you will need to pay or save monthly to meet your goals and then determine what spending habits need to change to meet those goals. If you want to do something like budgeting, starting on Google and seeing what advice regarding budgeting it out there is a great place to begin. Of course, if you want further help or already have an existing relationship with one, you can also always speak with a certified financial planner or wealth manager to get the advice you need/want. So, what are your financial goals for the next year?
Many Americans choose to make charitable donations with their retirement funds. For some it’s a way to give back to the community, while others use it as a way to support causes that are important to them. Whatever the reason for donating–if you choose to do so–you should understand the ramifications of that decision as well as the most efficient way to make a donation. It’s been a while since I’ve written about it, but qualified charitable distributions (QCDs) are probably the most efficient and effective way to make a charitable donation from your retirement funds. In case you forgot what a QCD is, it’s a charitable donation of up to $100,000 to a qualified 501(c)(3) charity made from an IRA. A QCD can offset any RMDs that need to be made for that year, but can only be made if you are 70 1/2 years old. QCDs offer a similar tax outcome to itemizing your charitable giving, if that matters to you. And yes, QCDs are allowed this year even though RMDs are suspended. Which leads me to my next part of charitable giving–the tax implications. While I cannot offer tax advice, I can advise you to speak with a tax professional if you are making substantial charitable donations in the hopes of taking advantage of tax incentives for doing so. That goes for whether you are over 70 1/2 and are making a QCD or are not yet retired, but want to make a substantial donation to your favorite charity. A tax professional should be able to give you a good idea as to how a donation may impact your taxes and whether it’s overall a good idea. However, if you want to know how a QCD or other charitable giving might affect your nest egg or financial plans, you will want to also speak with a certified financial planner or wealth manager.
While I try to be somewhat positive with what I write in this blog, sometimes I find that I have to be real and that being real sometimes requires being a little cynical. This is one of those “being real” blogposts. Retirement doesn’t always happen how you want it to and, with that in mind, sometimes you need to think about those worst case scenarios. For example, how much would an early retirement change your plans? What if you are forced to retire sooner than anticipated due to injury or downsizing–can you handle tapping into your nest egg sooner than expected? These are things you need to think about and, ideally, have a plan to handle such situations. In fact, you probably should think of at least a few “worst case scenario” situations regarding retirement and make plans for how you would tackle them if they occurred. For example, if you were forced to retire early are there assets you could sell or tap into to make ends meet before reaching into your nest egg? What if you find yourself in the opposite type of scenario and don’t have enough saved for when you plan on retiring? Will you work longer or change your retirement plans? Thinking about these worst case scenario situations won’t be pleasant, but it is an important part of planning. You need to be prepared for whatever may come your way and at least thinking about such bad situations is a part of that. If you need help with planning for retirement or want to discuss having a backup plan, of course I always encourage you to speak with a certified financial planner or wealth manager. What’s your worst case retirement scenario?
I don’t mean to state the obvious with the title, but I feel like it’s worth mentioning, especially as we head into a winter that may be like none other that we have seen. The next few months seem to be on course to create a lot of anxiety for many Americans. We are currently in the middle of a pandemic that many healthcare professionals are predicting will see a second wave of infections over the next month or so. There is also a transitional period occurring politically that is fraught with unpredictability. And then there is the added stress of the holiday season. Those first two stress points have the ability to shake up the markets and have impacts on the investments that could further impact your portfolio. The third stress point is always there, but could be further complicated by job losses or worry about what the future may hold for your nest egg. I’m not going to sugarcoat it, it can be a bit scary, especially when you don’t know what might happen to send the stock market on a wild ride. While I don’t have any magic solution to your anxiety, I do want to make sure you realize that you are not alone in your worries. Sometimes there’s not much you can do aside from track your investments, make necessary changes and adjustments, and keep living life. We will get through this and we will eventually return to normal. It may be a “new” normal, but it will be much more normal than what we have been going through for most of 2020. Now, as you head into this holiday season, I suggest you focus your time and energy on family and friends and the people who mean the most to you. Yes, you can check your portfolio daily and adjust as needed, but try not to let it be all you think about. Take some time to think enjoy what’s around you and don’t let fear or stress overpower you. Of course, if you do have concerns about your retirement plans, I suggest you speak with a certified financial planner or wealth manager who should be able to relieve any concerns or answer any questions you may have.
Many financial advisors and wealth managers encourage their clients to have goals when it comes to retirement. Of course, that can mean different strokes to different folks. For example, one person may have a goal of saving a certain amount of money for retirement. Another person may want to save up to buy a retirement home in a warm weather locale. Another may want to have enough saved up to take a big trip every year. Whatever it is, it’s good to set a goal to work towards. However, the road to retirement can be long and along the way things can change. Layoffs happen. Unexpected bills occur. Having children and a family can add some costs along the path to your post-working life. Thus, those retirement goals and benchmarks you set out with can change. And you know what? There’s nothing wrong with that. In fact, it’s a good thing to reassess your retirement goals every so often. Maybe living far away from children and grandchildren doesn’t sound so appetizing. Or maybe you realize that you’re saving more than you anticipated and have a little more freedom with retirement to get a little more fancy with your goals. Or maybe you realize you need to save more. Whatever you find, don’t be afraid to change your retirement goals and use those new goals and benchmarks moving forward. If you need help with your current goals or want to make a change, don’t be afraid to speak with a certified financial planner or wealth manager to get some advice.
There are probably very, very, (very) few people out there excited for the announcement of new life expectancy tables used to determine required minimum distribution (RMD). I mean, let’s be honest, nobody is every really gets excited for IRS announcements. While I can’t say this announcement made my day, I did think it was some really good information worth sharing with you as it could have a substantial impact on your retirement savings and financial plans. Furthermore, the IRS does not normally revise their RMD tables, so this was notable (In fact, it’s been almost 20 years since the last revision). As you probably well know, RMDs are waived for 2020 and 2021 RMDs will follow the existing RMD tables. Again, these RMD changes won’t go into effect until 2022 so, of course, I encourage you to start thinking about it now when it comes to what you want to do with your RMDs and whether your current retirement plans might be impact by an RMD change. If you aren’t familiar with life expectancy tables, there are three that the IRS uses when determining RMDs for those old enough to take them and their beneficiaries: The Uniform Lifetime Table (used to calculate YOUR lifetime RMDs), the Joint and Last Survivor Table (used for when your spouse is your sole beneficiary and is more than 10 years younger than you), and the Single Life Table (when used by an “eligible designated beneficiary” such as a minor child or a surviving spouse). The new changes will most likely lower RMDs for most Americans, which also means lower taxes on your RMDs. Lower taxes means you can spend more of your nest egg on retirement and you. Maybe some IRS announcements aren’t so bad after all.
If you are an educated retirement saver, then you are probably well aware of the 10% penalty you can get hit with if you take a withdrawal from your IRA or employer retirement plan before age 59 1/2. For many Americans–particularly those hit hard financially over the past 8 months–it can be tempting to take that early withdrawal to stay afloat. However, you’re a smart saver and you’ve most likely put yourself in a situation where you don’t need to hit your nest egg. That said, though, you should be aware of the exceptions to the 10% penalty. Now, I’ve mentioned these exceptions in the past, but I feel the need to mention them again as it’s been a while. There are a few exceptions, though, when you can take that early withdrawal and not have to worry about the 10% penalty. Buying your first home? Take that early withdrawal with no penalty. Want to help out a child with college tuition? Take that penalty free withdrawal. Lose your job and need help affording health insurance? Again, take the withdrawal and not worry about the penalty. These tend to be commonly used exceptions to the 10% early withdrawal penalty. Now, before you go taking huge early withdrawals from your retirement savings accounts, make sure it’s the right decision above all else. If you can get the funds you need from other places (ideally, an emergency savings account) that may be the wiser route to go. Remember, your retirement savings accounts should be an absolute last resort when it comes to taking early withdrawals. You should also meet with a certified financial planner or wealth manager to make sure you are making the best decision for you and your future and to ensure you take the proper steps when taking that early withdrawal.
I’ve written about the SECURE Act a number of times over the past 11 months or so since it was signed into law. As you may well know, that legislation brought about some big changes, including raising the age for required minimum distributions (RMDs) up to age 72, allowed traditional IRA contributions past age 70 1/2, and eliminating the stretch IRA. Now, there could be even more changes coming to the retirement planning world in America. Recent bipartisan legislation introduced last week, and referred to as Secure Act 2, could take some of the parts of the original Secure Act even farther. Some of the key points of the legislation are the expansion of automatic enrollment to include 401(k), 403(b), and SIMPLE plans, raising of the RMD age to 75, increasing catch-up limits, and matching employer contributions for employees making student loan payments. That last part is interesting as it would potentially allow employers to make matching contributions under a 401(k), 403(b), or SIMPLE IRA for employees making “qualified student loan payments.” The legislation also includes a number of other somewhat minor changes to retirement plans and planning. While it’s still in the early stages, this legislation could have a major impact regarding how people save and when they start spending their nest egg. Obviously, things still have way to go, but I wanted to make you aware of potential changes that could be coming down the pike. It’s worth at least keeping an eye on.