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Rule Change: IRA Required Distributions

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Legislation intended to ameliorate the effects of the COVID-19 pandemic changed the rules on IRA required minimum distributions.

The SECURE Act passed in December 2019 changed the beginning date for required distributions to the year after you turn 72. This applies to people who turn 70 and a half after last December 31st. Otherwise the old rule applies.

However, the CARES act signed in March wipes out any required minimum distribution for 2020. IRA owners may still take distributions at their option, but the Required Minimum Distribution does not apply. Taken together, these laws give IRA owners new flexibility.

Your personal situation may be affected by these changes. Your cash flow strategy, Roth conversion strategy, or tax strategy may need additional thought. Or you may want to revisit your retirement account investment strategy. Retirement accounts may be a significant portion of invested assets.

Bottom line: clients, if you would like to talk about how these changes affect you, please call or email us.

Hammer or Pliers?

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Recently a client asked us a common question. With a little room in the budget, should more money be added to retirement savings, or a regular investment account? Which one is better?

Of course, the answer depends on the situation. In the early and middle career stages, one might not put funds to be used before retirement into a retirement account. Saving for intermediate term goals like buying or trading homes, or buying a boat or camper, perhaps should be done outside of a retirement account.

But getting it down to fine points, some retirement plans have provisions for using money before retirement without penalty. We believe you can gain an edge by paying attention to the fine points. We like to outline all the alternatives so you can make a good decision.

On the other hand, money to be devoted to growing the orchard – a pool of capital that you may someday live on – should almost always be sheltered from taxes, if possible. This typically means into some form of retirement plan. The tax advantages may make a big difference over the years and decades ahead.

And retirement plans come in different flavors. Individual retirement accounts, employer plans of various kinds, Roth… there are many options.

Just as one cannot know whether the better tool is a hammer or a pair of pliers, one cannot know the best way to invest without understanding the job the money is supposed to do for you. That’s why we talk back and forth! You ask us things about our area of expertise, we ask you things about yours. A meeting of the minds is just the thing to make progress, with a collaborative process.

Clients, if you would like to talk about this (or anything else), please email us or call.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

 

Clothes, Money, Wealth–Simplicity

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When I graduated from college just before my 21st birthday and went into business, I dressed to appear more experienced than I was. Suit, tie, wing-tip shoes—you know what I’m talking about. As the years went by, ‘trying to look experienced’ ceased to be an issue, somehow.

Over time, my wardrobe evolved into a new kind of uniform. Doc Martens casual shoes, gold socks, khaki slacks, polo shirt. In winter, add a sweater. When something wears out, replace it with like kind. I might be spending about $150 or $200 per year on my business wardrobe these past many years.

One of the byproducts of this simplified wardrobe is pure efficiency. I spend no time working out what to wear. My socks are all the same color. Choice of slacks is easy: the clean ones. And the polo shirt I select each day is the one whose ‘turn’ it is. My conscious thoughts run more to how to grow your bucket, and not so much trying to match colors on my fashion plate.

Mark Zuckerburg, billionaire social media pioneer, is famous for wearing the same modest clothes every day. Steve Jobs, cofounder of Apple, had the same habit. Anybody who has seen television talent show personality Simon Cowell has noticed his ever-present trademark black T shirt. Many decades ago, scientist Albert Einstein owned a number of suits—all grey.

Some of these luminaries are on record with the notion that the simplicity of standard routines creates time for them—and time is money.

Friends, I am not promoting the idea that you should be as boring as I am, sartorially speaking. There is a different way that standard routines can replace conscious choice and enrich you.

By making your periodic investments automatic instead of the product of a deliberate, recurring decision, you accomplish two things. First, the investment actually happens on schedule, every time—it is automatic. And second, you spend no time working on it or thinking about it every month—and time is money.

This is the way 401(k) and other retirement plans work. We know people who signed up for them, paid no attention for some period of years, and were surprised to find out later that they had accumulated tens or hundreds of thousands of dollars.

Roth IRA’s, college savings plans, and other forms of investment can be set up the same way. Automatic monthly investments may be drafted straight from your bank account, without the need for thought or action on your part.

Clients, if you would like to simplify more parts of your financial life, or talk about any other pertinent topic, please email us or call.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.