FISCAL FITNESS

from The Growing Concern March 2020

PLANT OF THE MONTH

MICHAEL J. DONNELLAN King Financial, Inc.

THE ‘S.E.C.U.R.E.’ ACT

The SECURE (Setting Every Community Up for Retirement Enhancement) Act was signed by President Trump before the end of the 2019 year. But what does it mean for you?

This new law focuses on three key areas of retirement planning:

• • Modifying Required Minimum Distribution (RMD) rules for retirement plans Expanding retirement plan access Increasing lifetime income options in retirement plans

The most immediate impact will be felt by those nearing or in retirement. If you are an investor in a retirement plan or looking at setting up a plan for your business, here are a couple ways the SECURE Act may affect you. NOTE: provisions took effect on or after January 1, 2020, unless otherwise noted.

ELIMINATION OF THE “STRETCH IRA” Perhaps the change requiring the most urgent attention is the elimination of long-standing provisions allowing non-spouse beneficiaries who inherit traditional IRA and retirement plan assets to spread distributions — and therefore the tax obligations associated with them — over their lifetimes. This ability to spread out taxable distributions after the death of an IRA owner or retirement plan participant, over what was

14 | Official Publication of The Ohio Landscape Association potentially such a long period of time, was often referred to as the “stretch IRA” rule. The new law, however, generally requires any beneficiary who is more than 10 years younger than the account owner to liquidate the account within 10 years of the account owner’s death unless the beneficiary is a spouse, a disabled or chronically ill individual, or a minor child. This shorter maximum distribution period could result in unanticipated tax bills for beneficiaries who stand to inherit high-value traditional IRAs. This is also true for IRA trust beneficiaries, which may affect estate plans that intended to use trusts to manage inherited IRA assets.

In addition to possibly reevaluating beneficiary choices, traditional IRA owners may want to revisit how IRA dollars fit into their overall estate planning strategy. For example, it may make sense to consider the possible implications of converting traditional IRA funds to Roth IRAs, which can be inherited income tax free. Although Roth IRA conversions are taxable events, investors who spread out a series of conversions over the next several years may benefit from the lower income tax rates that are set to expire in 2026.

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BENEFITS TO INDIVIDUALS On the plus side, the SECURE Act includes several provisions designed to benefit American workers and retirees.

• People who choose to work beyond traditional retirement age will be able to contribute to traditional IRAs beyond age 70½. Previous laws prevented such contributions. Retirees will no longer have to take required minimum distributions (RMDs) from traditional IRAs and retirement plans by April 1 following the year in which they turn 70½. The new law generally requires RMDs to begin by April 1 following the year in which they turn age 72. Part-time workers age 21 and older who log at least 500 hours in three consecutive years generally must be allowed to participate in company retirement plans offering a qualified cash or deferred arrangement. The previous requirement was 1,000 hours and one year of service. (The new rule applies to plan years beginning on or after January 1, 2021.)

BENEFITS TO EMPLOYERS Another provision of the SECURE Act will make it easier and less expensive for small business owners to set up retirement plans for employees. The new rule will let small businesses band together to offer what are called Multiple Employer Plans (MEPs). Also, part-timers could be included in the new plans. However, it could be a few years before the Department of Labor will clarify the rules and these provisions don’t take effect until 2021.

REVIEW TRUSTS People used trusts as beneficiaries of IRAs and 401(k)s with a “pass-through” feature that let the beneficiary stretch out the tax benefits of the inherited account. The benefit of the

16 | Official Publication of The Ohio Landscape Association trust was, in part, to help manage the inherited retirement account and provide protections from creditors. However, many of these trusts only provided the beneficiary or heir access to “only the RMD due each year.” But with the new 10-year distribution rule, it is now important to review the language in the trust to deal with beneficiaries.

We’ve been advising many clients about how beneficiaries should be listed on retirement accounts since the SECURE Act was passed. The SECURE Act represents the most sweeping set of changes to retirement legislation since the Pension Protection Act in 2006. Many of these rule changes require proactive planning. Make sure you speak to your financial, tax and legal advisors to determine a plan of action for your situation.

Michael J. Donnellan is President of King Financial, Inc. specializing in stock selection and retirement planning. Feel free to contact him with any questions or comments at the M3 Wealth Management office at 17601 W. 130th Street – Suite 1 in North Royalton, Ohio. Phone number (440) 652-6370 Email: donnellan@m3wealthmanagement.com.

Securities and advisory services offered through L.M. Kohn & Company, Registered Broker/Dealer, Member FINRA/SIPC/MSRB, 10151 Carver Rd. Suite 100 – Cincinnati, Ohio 45242, (800) 478-0788

* King Financial Inc. does not provide legal or tax advice, consult an attorney or tax professional regarding your specific situation. The information herein is general and educational in nature and should not be considered legal or tax advice.

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