Retirement Planning Strategies - April 2020

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APRIL 2020

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DON’T LET TAXES GET THE BEST OF YOU Stay Up to Speed With Your Choices and Changes

Tax Day is July 15 this year due to the COVID-19 pandemic, so if you haven’t tackled taxes yet, you have a little more time to prepare. If you’ve finished, relax and enjoy any returns you might receive, but don’t get too comfortable because it’s never a bad time to start planning for things to come. There’s still a lot to consider for your future. I’ve been telling people that taxes are basically “on sale” right now. What I mean is that with the tax cuts that came in 2018, most middle-class Americans saw a 3% decrease in their tax obligations. That means if you’ve been thinking about opening a tax-qualified account of any kind, like a Roth investment retirement account (IRA) or 401(k), now is a great time to do so. Even if you don’t need the money today, it’s a great opportunity to plan ahead. When we talk about planning ahead, the focus is often on our family and our descendants and how we’ll be able to care for them after we’re gone. We talked about an important new feature this year in a previous edition of this newsletter, but it’s a big enough change that it’s worth repeating and well worth thinking about

beyond the pages of this newsletter. It’s the SECURE Act, and you need to know how it affects changes when it comes to taxes and providing for family later on. Remember that the SECURE Act has been in effect since January 1, 2020. So, while that means it doesn’t affect your taxes during this tax season, it’s still critical to think about it over the course of this year in preparation for the future. To refresh, this act changes how people and their beneficiaries can access retirement money. The age to begin taking your required minimum distribution has been raised to 72. You will also be taking those distributions at 3.91% of your tax-deferred accounts. But one of the most major changes to the SECURE Act is how it affects your beneficiaries. Before the act, if your beneficiaries inherited your traditional or Roth IRA, they could either accept the full sum of the inheritance at once and pay income tax on it or stretch the withdrawals for as long as they wanted and benefit from the tax advantage. But now, your beneficiaries are required to accept the entire inheritance and pay the income tax on it within 10 years. That means taking out much larger

sums of money over a shorter period of time, which leads to increased tax dollars.

In situations where the details of taxes and retirement accounts go through changes, people are often left wondering, “Well, does this really affect me?” The answer for many is that it usually does, at least in part. But if you fall into two specific categories, these changes impact you more. If you aren’t too dependent on your retirement accounts for income today, then opening a tax-qualified account like I mentioned is a great idea for your future. If you have kids or grandkids that you want to leave tax-free money to, then the SECURE Act is certainly something to take seriously and think about how it affects your plans for your loved ones. The current tax season will come to a close this summer, but just because it’s ending doesn’t mean you should stop making plans affected by it. Always do your best to stay up to speed with ongoing changes and plans for your accounts so that you can continue to make the best choices for your future.

–Ann Vanderslice

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