2020 SECURE ACT: Setting Every Community Up for Retirement Enhancement

2020 SECURE ACT: Setting Every Community Up for Retirement Enhancement

President Trump signed the SECURE Act (“Setting Every Community Up for Retirement Enhancement”) on December 20.  Click here for a full text of this law.

The Act is designed to encourage Americans to focus on their financial future and retirement, by offering more access to work-place retirements and new rules to help increase savings.  Over all, most people are NOT prepared for retirement.  They don’t think that far ahead.  According to this Retirement Throughout the Ages report by the Transmerica Center For Retirement Studies, this is how much American people have in their retirement by age.

  • 20s: $16,000
  • 30s: $45,000
  • 40s: $63,000
  • 50s: $117,000
  • 60s: $172,000

WHAT?!?!  That is not nearly enough to live on. ESPECIALLY in California, and especially is you are healthy and expect to live until 100.

Here is my summary of this bill and how it can help you.

Contribute to an IRA at any Age

It used to be that you had until 70 1/2 to contribute to your IRA. (Except for Roth Ira, any age) Well, now you can contribute when you’re 80 even!  or 100!  With our life expectancy and productivity increasing, this will really help the late bloomers.

Small Business Access to Retirement Plans

It used to be notoriously expensive and risky (fiduciary liability and such) to offer 401s, an expense which prevented small businesses from wanting one.  Now, small businesses can pool together their resources and offer one multi-employer plan with less costs and less risk.  The SECURE Act will provide an annual tax credit of up to $5,000 (up from $500) toward administrative fees for the first three years that an employer offers a workplace retirement plan for their employees.  In addition to a maximum tax credit of $15,000, new rules will encourage the development of Multiple Employer Plans (MEPS).  MEPS allow small businesses to pool their resources to simplify the administration of retirement plans.

This will hopefully incentive more small businesses to offer retirement plans to its employees.

Adding Annuities to Small Business Plans

Now, it’s possible for 401(k) plans to offer annuities as part of their investment options by decreasing the regulatory barriers involved.  Annuities are often referred to as “longevity insurance,” as they provide a way to pool the risk of living too long (thereby using up all your money before you die).  The SECURE Act will make it easier for employers to add a range of annuity options within their retirement plans, both deferred and immediate.

Upped the RMD Age to 72 from 70 1/2

The age at which owners of tax-deferred investment account must start taking distributions is currently the year in which they turn 70 1/2.   This is confusing as hell because must I take it in 2046 or 2047?  The SECURE Act would increase the starting age for RMDs to 72, which allows for an extra 1 or  2 years, and eliminate half-year birthday confusion.  The new RMD rule will only apply to individuals who turn 70 1/2 after Dec. 31, 2019.  (sorry, those born June 1949 or earlier.

Bye Bye Stretch IRAs

It used to be that heirs of wealthy parents can choose to distribute the assets of an inherited IRA over a lifetime.  Money, taken little by little, means deferring tax over their lifetime.   No longer.

The SECURE Act will now require that inherited IRAs be distributed within 10 years.

But as there is always for the rich, there are loopholes.  Ask your tax attorney about Roth conversions and Charitable Remainder Trusts.

Penalty-Free Withdrawals for Birth/Adoption

New parents can withdraw up to $5,000 from an IRA or an employer-sponsored retirement plan to pay for birth and/or adoption expenses, through the first year after the birth or adoption.  Taxes still need to be paid on pre-tax contributions, but no penalties apply to the withdrawal.

529 Plans Can Pay Student Loans

Assets in these college-savings plans can now be used to repay up to $10,000 in student loans.

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With the advent of these new laws, it’s time to start planning FIRE!

How does one become financially independent and retire early (FIRE)? In my opinion, 7 steps.

1. Save a lot and start early.

Like, as soon as you make money. For me, I was age 12, making $3/hour babysitting. I made $2,000 that summer, which went in a bank account until I could buy mutual funds. That $2,000 is worth about $40,000 today and all I did was NOT touch it. I am the queen of frugality. Yes, I drive the same car, live in the same house, wear the same clothes, cook healthy dinners every night for my family.  This girl even cut coupons! If there is a discount promo code, you can bet I’ve used it.

I don’t belong to some fancy gym. Instead I go to the park with my dogs and hike mountains every week. It’s outdoors and therapeutic, and free!!!!

Any money you have laying around, Max out your retirement accounts. You can defer up to $19,500 next year on 401ks. And if you qualify, ROTH is $6,000 a year. There is also Health Savings Accounts. And 529s. Save Save Save!!! Like child rearing or marriage, it’s not a fast process but the end results are so satisfying! I just handled a divorce where my client had about $88,000 in a separate 401k before marriage. 22 year marriage , no contributions during marriage. That $88,000 is now 1.4 mil dollars. (And bc he had a prenup, completely separate and not divided). The only thing I splurge on is travel, and I religiously scour the Internet for deals and use google flights to track tickets.  OK, and I also buy Scratchers and play the lottery.

2. Educate yourself about money.

My first money book was “Rich Dad, Poor Dad”. I read this when I was 15 years old. Learn about the stock market, real estate and investing!  Suze Orman. Dave Ramsey. Motley Fool. Morningstar. Learn!! There is simply no reason for anyone to be financially illiterate with the amount of resources out there. I find it appalling how little people know about money. Shockingly, lawyers and doctors are especially bad at money management (because they’re too “busy”).

3. Be a good spouse and select the right spouse.

Nothing can split your estate in half faster than a divorce + attorneys. Marriage is hard work. It’s like Christmas. Giving is better than getting. Work on it every day. If you must divorce, educate yourself on issues and try to settle it on your own (or use a competent divorce mediator) without unnecessary involvement of expensive experts. People mistakenly think you start over with half in a divorce. Minus all the fees you pay, It’s more like 1/4. Or nothing. If you can work on your marriage, please do!!! It’s worth it. Not just financially. Emotionally, physical therapy and mentally. Marriage is grand. Divorce? One hundred grand.

4. Time is money.

Compound interest is more satisfying than any Hermes croc handbag. I recently did a prenup where one smart young lady invested $10,000 in Google at their IPO. It’s now worth over 1 million dollars. Now THAT’s satisfying.   Note she was smart at getting a prenup and never commingled this pre-marital money.  (Don’t ever be afraid to ask for a prenup. Read my article “How to Get a Prenup Without Hurt Feelings”. There is a paragraph at the end of the blog post that also discusses what to do if you end up being the sucker that married without a prenup.)

5. You’ll never keep up with the Jones or Kardashians so don’t even try. (Plus all they have is more debt).

Want a bigger house? Bigger car? Fight the urge. Unless you NEED it, skip it. Buying a bigger house means losing all of your equity in your current house and starting over on the mortgage AND doubling property taxes. Like a spouse, find a home you like and pay if off. If you can, find an office you like and pay that off too.

6. A 15 year mortgage pays off your house super fast!

And saves you a bunch of interest. And is usually much lower interest rate.  If you can swing the payments by cutting back other areas of spending, do it.  Chances are, the ENTIRE payment increase (and more!) is going towards principal.

7. Credit cards are the root of all evil.

Use them ONLY to establish good credit. Pay them in full every month, or don’t use them at all.

And while I’m on the subject of credit cards, stop buying useless shit. When I was litigating and super busy 8-9 years ago, Amazon boxes were showing up every day at my doorstep. I was buying shit every day for my babies. Stuff we barely used. Stuff I don’t remember buying. I would buy toys for my kids and not even play with them.

News for you: Kids don’t want toys. They want present parents who play with them, spend time with them, pick them up from school.  They want parents who pack them healthy lunches and cook healthy dinners and teach them things like compound interest and law. (Just kidding, I’m projecting.). I hated the me that was engaged in doing all these things:  buying without caring;  googling “best gifts for 2 year old” and buying every thing that popped up; seeing the mess of wrapped gifts under the tree and not knowing which was which. If someone took a couple gifts, I wouldn’t even know they were missing.

I realized I was overcompensating for my lack of time. Children grow so fast. They want ME. Mama. Not stuff. So I semi-retired, and gave them all of me. They’re young and in the house once. I can always work later.

FIRE is Possible!

Anyway, retiring early is now even more possible with the passing of the SECURE ACT: Setting Every Community Up for Retirement Enhancement

It does take some planning though.

But then again, man plans and God laughs. So maybe just ignore this whole post.

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