If you have a financial plan in place, you may think you’re set. However, the rules of retirement are always subject to change. We’ve seen new retirement legislation in the last few years and could see more soon. It’s important to understand how you could be affected and think about how you will respond.
The End of the “Stretch IRA”
The first SECURE Act, passed in 2019, changed the rules for inherited retirement accounts: Instead of allowing those who inherit 401(k)s or IRAs to “stretch” distributions over their lifetime, they now must empty the account within 10 years of the original owner’s death. There are some exceptions, including spouses who inherit accounts. Recently, the rule was clarified to state that those who inherit accounts must take out a required amount each year, as opposed to waiting until year 10.[1] The end of the stretch IRA and this latest requirement could mean that you need to revise your financial plan if you have an inherited retirement account, as well as your estate plan if you want to pass on a retirement account.
The SECURE Act 2.0
We could see a SECURE Act 2.0 pass in Congress soon. It would include many changes, such as raising the catch-up contribution limit for retirement accounts. Those between 62 and 64 would be able to contribute an additional $10,000 to their 401(k) and 403(b), and an extra $5,000 to a SIMPLE plan. It would also index the IRA contribution limit to inflation and increase the age at which Required Minimum Distributions (RMDs) start from 72 to 75 by 2032. It would make it easier to buy annuities by easing technical RMD requirements for annuity options.[2] If we see this legislation passed, it will be important to know how you’re affected and what opportunities you may be able to take advantage of.
The Expiration of the Tax Cuts and Jobs Act
Estimating your tax burden in retirement can be difficult when the tax code is always subject to change. When the Tax Cuts and Jobs Act expires at the end of 2025, your tax situation could change significantly. Unless new legislation is enacted, the standard deduction will return to $6,350 for individuals and $12,700 for married couples filing jointly. Many rules regarding itemized deductions will change back to what they were before the Tax Cuts and Jobs Act was passed.[3] We could see higher taxes in the coming years, so be prepared to plan for the tax rates of the future.
[2] https://www.kiplinger.com/retirement/retirement-plans/602821/secure-act-2
[3] https://www.investopedia.com/taxes/trumps-tax-reform-plan-explained/
The commentary on this blog reflects the personal opinions, viewpoints, and analyses of BML Wealth Management’s employees providing such comments and should not be regarded as a description of advisory services provided by West Wealth Group, LLC. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog constitutes investment advice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future returns.
Investment advisory services through West Wealth Group, LLC, an SEC Registered Investment Adviser. BML Wealth Management and West Wealth Group, LLC are affiliated entities. Insurance Services are offered through BML Wealth & Insurance Services, California Insurance License #0M15550.
We do not provide tax or legal advice, all individuals are encouraged to seek guidance from qualified professionals regarding their personal situation. Any references to protection benefits or steady and reliable income streams in this guide refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products.
