Retirement Planning - Redefined

Retirement Planning - Redefined header image 1

Ep 12: Secure Act Changes - RMD

January 16, 2020

After it simmered in Congress for a year, the SECURE Act is now law. If you have a retirement account of any kind, or will one day inherit a retirement account, this will affect you. Today Nick will discuss the details around the new age specifications.

Helpful Information:

PFG Website: https://www.pfgprivatewealth.com/

Contact: 813-286-7776

Email: info@pfgprivatewealth.com

Transcript of Today's Show:

Speaker 1: Hey everybody, welcome into another edition of Retirement Planning Redefined. Into 2020 with our first podcast of the new year, joined this week with just Nick on the show with me. Nick McDevitt joining me here from PFG Private Wealth. Nick, buddy, what's going on? How are you?

Nick M.: Just recovering from the holidays and getting ramped up for the new year.

Speaker 1: Yeah, aren't we all? It's so weird. Are you used to 2020 yet? I don't know, it's a weird number to me.

Nick M.: It is weird. Honestly, I was having this conversation with somebody the other day and the craziest thing to me is, with the age that I am, my grandparents were born in the early 30s, late 20s and it takes me back to thinking about in grade school, learning about The Great Depression and realizing that, that was 100 years ago almost.

Speaker 1: Yeah.

Nick M.: World War I and how far back, growing up in the 90s, how far back the 20s seemed and now here we are again.
Speaker 1: Yeah. Well, to that point, I'm a little older than you is, my dad was born in '32. Actually my grandfather was born in 1890, go get that. And here it is 2020, so that just totally trips me out. My family had this weird and I'm only 50. But my family had this weird tradition of having, well, they had a lot of kids back in the day, but then they also had them late. My dad was 40 when I was born and so on and so forth. So yeah, maybe that's why, my wife's grandfather was born at the same time my dad was, and it's just really weird how different people's family dynamics work.

Speaker 1: But to that point, 2020 is bringing us a lot of change obviously and we're going to spend probably, we're going to the next two podcasts around this topic, but obviously we're going to have an election later this year. The market popped 29,000, the DOW did for the first time, actually I think has done it twice now. It went over and then went back down at the time of this podcast taping, here in the early couple of weeks of January. So we'll see. It didn't drop very much, but it's gone over and down. So that's new records and new things happening, a lot of stuff.

Speaker 1: But out of all of that, one thing that really affects our listener base here for retirees and pre-retirees is the passing of The Secure Act. We talked about it months ago that it was sitting before the house and it looked like it was dead, The Secure Act. But then all of a sudden in December, there at the end, they slipped it through with some budget stuff. So let's talk a little about The Secure Act this week, shall we?

Nick M.: Yeah, yeah. For sure. I was pretty surprised that it pushed through as quickly as it did. I had some clients that touched base towards the end of the year. And I told them what I always tell everybody from the standpoint of once it's passed and it's done, then we can talk about it.

Speaker 1: Yeah.

Nick M.: Because there's always little adjustments and amendments and things like that, that are made. But a lot of the key aspects carried through. And so we're still pouring through the details or really getting into the nitty gritty. But we figured today, we could at least cover one of the topics.

Speaker 1: Yep, sure.

Nick M.: And focus on that.

Speaker 1: Yeah, we're going to do that with this week's podcast and next week. We're going to cover the two biggest components that it pertains to a lot. There's multiple facets to The Secure Act and like any piece of legislation, there's good and there's bad. And of course, the government had to give it this name, secure. So for folks who are wondering, it actually is an acronym, it's setting every community up for retirement enhancement. So that's a mouthful.

Nick M.: Yeah, I always wonder how many people got in a room to try to figure out those sorts of things and how long it took them.

Speaker 1: How much money they spend just coming up with a name.

Nick M.: Yes, yes. And it actually takes away, fortunately, as you alluded to, the biggest aspect of this is changing the age at which required minimum distributions are required.

Speaker 1: Let's get into it.

Nick M.: From 70 and a half, to 72 years old.

Speaker 1: Yeah.

Nick M.: Which ruins one of my favorite jokes about, again, the previous rule was so confusing to so many people and so absurd to make it a half a year and people trying to figure that out. We're constantly befuddled, so now this is pretty cut and dry and pretty easy for people to understand, which I think it is probably a bigger benefit even than the increase of age.

Speaker 1: Well, okay, so let's dive into that a little bit. So they did raise the RMD limit to 72, as Nick just mentioned. That's the required minimum distribution, was 70 and a half. Now we should say Nick, to clarify, that if you have already started your RMDs at that 70 and a half threshold, it's not like grandfathering but you have to stick with that. So make sure you are talking with your advisor about that. You don't get to switch.

Nick M.: Correct, yes. So if you turn 70 and a half before 01/01/2020, then you are-

Speaker 1: On the old system, yeah.

Nick M.: So it's everybody from 2020 moving forward, which again is a positive. A lot of people are working longer. And for those that don't need the full distribution, defer income to live on, it helps them accumulate and grow money for a longer period of time.

Speaker 1: Right.

Nick M.: We're definitely a big fan of the change.

Speaker 1: Yeah. And I think it needed to be done. I think from that standpoint, it's good and it does clear up that confusion piece, but we just have to get through this initial weirdness, right, for folks who maybe just turned or are just planning at the end of last year, that kind of thing. So there may be a few areas where you want to try to have that conversation with your advisor about where you fall in that. So it's certainly a piece you want to ask.

Speaker 1: So as you're listening to this podcast, if you are new to our podcast and you're not working with John and Nick yet, make sure you reach out to them. If you're working with another advisor, ask them that same question, how it's going to affect you because you still don't want to get hit with that God awful penalty that the RMDs have, which is 50%.

Nick M.: Correct. Yeah. So just as a reminder for everybody, when those required minimum distributions are calculated. And from my understanding, again, we're digging through all the language, the actual tables that are used to calculate the amount of money that has to come out, those tables themselves haven't changed. So it's just the time that you can wait as a little bit longer.

Speaker 1: Right.

Nick M.: And as a reminder to everybody, as an example, let's say that the required amount needed to come out as $50,000. And for the last three years you've been taking out $2,000 a month from your account or $24,000, the penalty would be the difference between the amount due, which is 50, minus the 24,000 so 26,000. It's 50% of that $26,000 so it'd be a $13,000 penalty, which is absolutely not a penalty that you want to participate in.

Speaker 1: No, that's like a death sentence and it's just terrible. I mean, so they don't mess around when it comes to making sure you do that. Now this piece of legislation, by the way, The Secure Act, folks, it's the most significant change since the 2006 Pension Protection Act that has come through. And there's like I said, there's a lot of components. We're just going to talk a little bit about the age limit today. And along with that line, Nick, they also did eliminate age limits for contributions. So tell us a little bit about that.

Nick M.: Correct. So previously, if somebody had a traditional IRA and they were continuing to work, so as a reminder for everybody, if you want to be able to contribute to a retirement account, you must have earned income. So for those people that were maybe, let's say, one of the things that we'll see a lot is, to keep themselves busy, people would work a part-time job, so they would have earned income. And they were over 70 and a half and they weren't necessarily working for the income. Of course, some are. But for example, even if you weren't, if you were over seventy and a half, you could not contribute that money into a traditional IRA, even though you had the earned income.

Nick M.: So that rule or that restriction has been lifted. So it allows people that are working longer, which is much more common than it used to be, to be able to add money to the traditional IRA and dependent upon other factors, to potentially deduct that. So that's a nice bonus because the other thing that happened is, because even if you were working in and this is how some of these two tie together. Let's say you're 71 and you were still working and you had IRA money and 401k money. Previously you would've had to take your RMD out of the IRA, although you could defer or wait on the money that was in the 401k for a business owner. So now that extra year and a half buffer, it can really, on some situations, it can really have a significant impact for some people on avoiding having to pay as much in taxes.

Speaker 1: Yeah. And it really also expands the opportunities for backdoor Roth conversions, as well for older clients, so that's nice as well.

Nick M.: Yes, absolutely. And for those of you whose ears perked up a little bit on the Roth conversion, there's a lot of caveats and we're actually going to have a podcast in the future that talks specifically about those. There's some hoops that you have to jump through, but that can be a really good tool to be able to use to produce some Roth money.

Speaker 1: Exactly. So yeah, make sure you subscribe to the podcast. That's a great segue for me to mention that. We are going to talk next time about the stretch IRA and what happened to it in The Secure Act. So by subscribing to the podcast, you'll get notifications for new episodes and really that's pretty much it. So it's a pretty easy thing to do. We just let you know about new episodes. You can listen to past episodes and you can find it a couple of ways. Whether Apple or Google or Spotify or whatever is your platform of choice, you can simply search on their a window, like if you're on Spotify and hit search. You could certainly just type in retirement planning redefined and get us that way or Apple or whatever platform you choose.

Speaker 1: You can also go to the guy's website@pfgprivatewealth.com. John and Nick have got the site there for their service, for their company. And while you're there, there's the podcast page. You can check that out. So that is pfgprivatewealth.com. That's pfgprivatewealth.com and you can also call them. As we mentioned before, it's very important. There's a lot of changes, a lot of components to The Secure Act. We're just going to cover over the next couple of episodes what's going to affect most of our listening audience, but there are a lot of little pieces, so you want to make sure you're having a conversation with your advisor and about the planning opportunities that may arise from these changes in The Secure Act law.

Speaker 1: Call John or Nick, give them a ring at the office there, if you need to talk with them. (813) 286-7776 in the Tampa Bay area, (813) 286 7776. Anything you can think of extra this week about the RMD component or shall we say goodbye for this week and hit it up next week?

Nick M.: I think we're good to go.

Speaker 1: With that, we'll say goodbye for this week on the podcast. So again, talk to your advisor about the RMD age limit change with The Secure Act. Reach out to John and Nick if you need a second opinion and we'll catch you next time here on Retirement Planning Redefined.