Retirement Income Planning Gains Importance.

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on whatsapp
Share on pinterest
Share on email
Retirement Income Planning Gains Importance.

Boomers Getting Older; Tax Laws Changing; IRAs Changing. So, What else is new?

Boomers are getting older.  According to a Pew Research Center study, four times as many boomers retired between February and September of last year than did during the same period the year before.  That’s 11 million boomers who retired last year vs 250,000 the year before.

And, retirement income is getting more complicated.  Today a coordinated, tax-smart asset location (not just allocation) is becoming more important than ever – not just for those who are still in the accumulation stage, but also for those in retirement who need an optimal sequence of withdrawal strategy from Social Security, annuities, investment accounts, and other sources of income.

Social Security saw three big changes arrive in 2021.   In addition to a 1.3% increase – a $20 monthly increase for the average recipient (party time!) – more earnings are now subject to Social Security taxation.  Beginning this year taxpayers will pay a 6.2% Social Security tax and a 1.45% tax for Medicare (known together as FICA) on the first $142,800 they earn (up by $5,100 from the year before.  Unfortunately, prices for goods and services have been rising even more, particularly food and utilities.  And, of course, the Social Security earnings limit will be higher.  But, so much for the weeds

The SECURE Act came along in December 2019.  It had five big IRA changes many find advantageous.

1. It repealed the age limitation for IRA contributions.  Now any individual can contribute to an IRA regardless of age, as long as that individual has eligible compensation.

2. Eligible compensation not only includes wages, salaries, tips, and self-employment income, it now includes non-tuition fellowship and stipend payments included in gross income and paid to aid in the IRAs pursuit of graduate or postdoctoral study.  In addition, home health care workers who receive foster care payments are included.

3. The beginning date for RMDs is now April 1st of the year that follows the year in which the participant reached age 72 (applies to those who reached 70-1/2 after December 31, 2019; those reaching 70-1/2 earlier are not affected and the CARES Act waived the RMD requirement for 2020).

4. Penalty-free withdrawals from retirement plans are now allowed for individuals in case of birth of a child or adoption – for both traditional and Roth IRAs (limits apply).

5. The distribution period has changed for certain beneficiaries – for both traditional and Roth IRAs.  Now, most beneficiaries must take full distribution of inherited IRA assets within a ten-year period.  This affect all those who inherited retirement accounts after December 31, 1019.  This is a game-changer for most non-spouse beneficiaries.

As I indicated earlier, asset location, not just allocation, has become more important than ever.  A retirement income strategy that’s tax-efficient will be key, unless you want Uncle Sam as an inheritor.  That might be okay if your children really do see him as big brother.

————————————

Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Jim's picture
Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

Schedule Your
20-Minute “Right Fit” Introductory Call Now!

Recent Posts

Archives

Schedule Your 20-Minute
“Right Fit” Introductory Call Now!