SECURE Act 2.0: What You Need to Know

Here is an update on some significant changes designed to help Americans save more for retirement. You may have heard of the SECURE Act 2.0, which Congress passed as part of a larger federal spending bill last week.1 This legislation builds upon the 2019 Setting Every Community Up for Retirement Enhancement Act and includes several provisions that may be beneficial to savers and investors. Here are some of the key points to be aware of: While the SECURE Act 2.0 may not solve the broader issue of inadequate retirement savings for all Americans, it’s still a significant development that could benefit savvy savers and investors. We’re here to help you understand how these changes may impact your financial strategy, so don’t hesitate to reach out to us if you have any questions or want to discuss these updates further. 1 Forbes.com, Jan 3, 2023

January 4, 2023 No Comments

How Women Can Prepare for Retirement

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration (SSA) estimates that today’s average 65-year-old woman will live to age 86½. Given these projections, it appears that a retirement of 20 years or longer might be in your future.1 Are you prepared for a 20-year retirement? How about a 30-year or even 40-year retirement? Don’t laugh; it could happen. The Society of Actuaries predicts that an average healthy woman that reaches age 65 has a 44% chance of living past 90, and a 22% chance of living to be older than 95.2 Start with good questions. How can you draw retirement income from what you’ve saved? How might you create other income streams to complement Social Security? And what are some ways you can protect your retirement savings and other financial assets? Enlist a financial professional. The right person can give you some good ideas, especially one who understands the challenges women face in saving for retirement. These may include income inequality or time out of the workforce due to childcare or eldercare. It could also mean helping you maintain financial equilibrium in

December 2, 2022 No Comments

How the SECURE Act could impact your retirement and your taxes

After languishing for several months in bureaucratic limbo, the SECURE Act (Setting Every Community Up for Retirement Enhancement) was signed into law on December 20, 2019; it went into effect on January 1, 2020. With an alarming percentage of Americans not saving enough for retirement, the changes in the SECURE Act are intended to help. It includes changes to some rules for IRAs and other retirement accounts, increases incentives for employers to set up retirement plans and make it easy for employees to enroll in them, and repeals some parts of the tax law passed in 2017. Here are a few important changes that may affect you: Changes to age limits for IRAs Contribution cut-off age Under previous laws, investors were not allowed to add money into a traditional IRA after they reached age 70.5. Under the SECURE Act, that restriction no longer exists — people may now contribute to traditional IRAs for as long as they (or their spouse) earn income, just as with Roth IRAs. NOTE: This law went into effect on January 1, 2020, so people over age 70.5 will not be allowed to fund a traditional IRA for tax year 2019, even though the deadline is

January 3, 2020 No Comments

High income? You may still be unprepared for retirement.

Even if you are nearing retirement and have a large 401(k) or IRA balance, you may not have as much money as you think. Lots of people don’t realize that they owe taxes on their accumulations. You have benefited throughout your investing years by not having to pay taxes on contributions into traditional 401(k) plans and IRA accounts and on the investment returns on those contributions. Deferring taxes for decades has real value. We usually come out ahead, even after we pay taxes on the withdrawals. And higher income people benefit the most. The problem is that higher income investors tend not to take taxes into account when assessing how well prepared they are for retirement. For some, the tax bill will be quite high, as shown in the table below. The group under consideration is working households ages 55-64 with assets in a 401(k) plan in 2016 — the most recent year for the Federal Reserve’s Survey of Consumer Finances. The income levels that define the deciles in the first column are for all working households. The second column reports the median combined 401(k) and IRA balances for those households in each decile that have a 401(k). The third

July 29, 2019 No Comments

What to do if you miss taking an RMD

People don’t often think of the IRS as their friend. But there is at least one taxpayer-friendly thing the IRS is known for: its process for people who miss taking their required minimum distributions, or RMDs, from a retirement account. If you don’t go about it the right way, though, it can cost you 50% of the missed amount plus interest as penalty. If you follow the steps below, you can possibly get the penalty waived. The IRS has a guidance that states that the penalty may be waived if the RMD was missed because of “reasonable circumstances.” It doesn’t specify what qualifies as reasonable circumstances, but if this is your first time missing an RMD (even one that covers multiple years) and it was an honest mistake, the chances are good that the IRS will grant a waiver if you correct it right away. Here’s how to ask for relief from the penalty for missing RMDs. The first step is to withdraw the missed amount. The IRS won’t even consider granting relief from the penalty until you’ve taken care of that. Then, you need to report the mistake to the IRS. You do not have to amend previous income

February 8, 2019 No Comments

IRA do’s and don’ts for 2019

The end of the year will be here before you know it. Consider making the following IRA tips into New Year’s resolutions and start 2019 on the right foot. NOTE: If you’re interested in starting a traditional 401(k), profit-sharing, or pension plan for year 2018, Azzad’s deadline is December 1). Check IRA and employer plan beneficiary forms. If you got married or had a birth, adoption, or death in the family in 2018, your retirement plan beneficiary forms may need to be updated. Take the new year as a reminder to look at the beneficiaries on your plans and make sure they’re the ones you intend. Don’t forget contingent beneficiaries. Although they’re often overlooked, contingent beneficiaries are critical. They generally inherit the retirement plan if the primary beneficiary passes away before the retirement account owner. You should always have both a primary and contingent beneficiary named on your retirement accounts. Review 2018 distribution reporting. Most IRS reporting will be done in January 2019 for 2018. Check all Forms 1099-R for accuracy. Mistakes are not uncommon. There still may be time to correct these forms if the mistakes are caught early enough. Make sure you receive your notification about RMDs for the upcoming year. If you’re 70½ or

November 2, 2018 No Comments

Three strategies to reduce your RMDs

Nothing lasts forever, not even the tax deferral on your IRA. When you turn 70½, the government will require that you withdraw money from your IRA; those withdrawals are known as required minimum distributions, or RMDs. But what if you don’t need the money? What if you want to avoid a tax hit? Here are three strategies to help reduce your RMDs. Be charitable. If you’re 70½ and planning on giving money to charity anyway, consider making a qualified charitable distribution (QCD) from your IRA. You can transfer up to $100,000 annually from your IRA to a charity free to tax. The QCD will satisfy your RMD without increasing your taxable income. Be careful though — make sure your QCD is done properly. Go Roth. If reducing RMDs is a top concern for you, you may want to consider converting some or all of your IRA into a Roth. This is because you aren’t required to take RMDs from your Roth IRA during your lifetime. While you will pay taxes on your conversion, you can exchange the one-time tax hit for a lifetime of never having to worry about RMDs and their tax consequences. Note: your beneficiaries will need to

September 7, 2017 No Comments

Rolling over your traditional 401(k) to a Roth IRA

Do you have a 401(k)? Ever wondered if you could roll over that account into a Roth IRA? You might be surprised to hear that it’s possible. You can make a direct or 60-day rollover from a 401(k) plan (or other qualified plan, 403(b) plan, or governmental 457(b) plan) to a Roth IRA, as long as you meet certain requirements.* First, you must be entitled to withdraw money from your plan. If you no longer work for the employer who sponsored that 401(k), then you would be eligible to do this rollover, and in some cases you may be able to withdraw your contributions or your employer’s contributions while you’re still working (for example, once you’ve reached age 59½). Second, your distribution must be an “eligible rollover distribution.” Distributions that cannot be rolled over include hardship withdrawals, certain periodic payments, and required minimum distributions (RMDs). Third, you must include the taxable portion of the distribution in your gross income in the year you make the rollover (“conversion”). But that’s the price you have to pay to potentially receive tax-free qualified distributions from your Roth IRA in the future. Fourth, if your distribution includes both after-tax and pre-tax dollars, you can

July 31, 2017 No Comments

The cost of not tracking your IRA contributions

Do you know how much you’re allowed to contribute to your IRA each year? Are you periodically tracking your deposits? Contributing more than the permitted amount can result in costly penalties. Fortunately, there are ways to fix it. How can it happen? Let’s look at a hypothetical example. In 2016, Ahmad, age 51, set up monthly automatic bank deposits to his traditional IRA that totaled $8,500. However, the IRA contribution limit for 2016 is $5,500, with a catch-up contribution for individuals over 50 of $1,000, for a total of $6,500. Although we believe automatic deposits are the best way to invest for your goals, it’s also an easy way to unintentionally contribute too much to your IRA. You may also end up with an excess contribution if you contribute to a Roth IRA and later discover that your modified adjusted gross income (MAGI) was above the Roth IRA income limit. And because you’re not allowed to deposit money into a traditional IRA for the year you turn 70½ or later, forgetting to turn off automatic deposits or continuing to contribute past that age will also count as excess contributions. Roth IRAs have no age limits for contributions. What can you

April 3, 2017 No Comments

3 common 401(k) mistakes employers and employees should avoid

For most people, saving in a 401(k) retirement plan is vital for their future financial health. Trying to save for retirement in a taxable account is not only challenging, but it’s nearly impossible to duplicate the same tax deferred compounding you get from a tax deferred (and often tax deductible) retirement account. Therefore, employers and their employees will want to avoid these 3 mistakes: The first mistake is not following an appropriate investment plan. Being equipped with an appropriate plan is essential to protecting yourself from acting irrationally in volatile markets. Instead of panicking and selling your portfolio when markets are down, stick to your plan and view such times as a buying opportunity. Don’t turn paper losses into real losses and consider this: if a security is down 50% it must rise 100% just to break even! Think about it in dollar terms: a stock that drops 50% from $10 to $5 ($5/$10 = 50%) must rise by $5, or 100% ($5/$5 = 100%), just to return to the original $10 purchase price.Of course, your plan needs to factor in your age and risk tolerance and be well diversified. For example: taking too much risk in volatile stocks when

February 8, 2016 No Comments