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How the SECURE Act could impact your retirement and your taxes

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

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The benefits of tax planning

Taxes can take a big bite out of your total investment returns, so it’s helpful to look for tax- advantaged strategies when building your portfolio. You don’t want to pay any more in tax than you have to. That means taking advantage of every strategy, deduction, and credit that you are entitled to. Tax-deferred and tax-free investments Tax deferral is the process of delaying, until a future year, the payment of taxes on income you earn in the current year. For example, the money you contribute to a retirement account (such as a 401(k) or deductible IRA) isn’t taxed until you withdraw it, which might be 30 or 40 years down the road! Any earnings the account generates are also allowed to grow tax-free. This can be very beneficial because the money you would have spent on taxes remains invested and for your own benefit. In the early years of an investment, the benefit of compound growth may not be very significant. But as the years go by, the long-term boost to your total returns can be dramatic. Tax deferred is not the same thing as tax free. Tax deferred means that the payment of taxes is delayed, while tax

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What to do with your required minimum distributions (RMDs)

Required minimum distributions, better known as “RMDs,” refer to the amount of money that is required to be distributed from pre-tax retirement accounts, like IRAs, after age 70.5. If the amount is not withdrawn, a 50% penalty may be assessed. While some retirees might take the RMD for necessary personal expenses, there are other options available to those who do not need the money. Here are two simple ideas for what you can do if you don’t anticipate needing your RMD: 1)      Convert your IRA to a Roth:  The RMD itself is not available for a conversion (after all, the government wants its tax dollars), but you can convert an IRA account into a Roth IRA. The conversion will be taxable, but the post-tax money can grow in a Roth IRA account tax-deferred afterwards without any RMDs. This is a good solution for those who are looking to leave their IRA account to heirs who may be in the same or higher tax bracket than themselves. Please speak with your investment and tax advisor before doing a Roth conversion as mistakes can be very costly. 2)      Donate to charity: In 2013, up to $100,000 can be transferred directly from an

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