Quarterly Update

We hope you have had a great holiday season and are looking forward to spring as much as we are. The end of the year has flown by and brought many changes to your options for retirement savings, college funding, required minimum distributions, and even some tweaks to potential estate planning.

Retirement Savings

Here’s a quick rundown of what we’ve seen in new, IRS-published limits:

• IRA and Roth IRA contribution limits remain the same. However, the inability to contribute to a Traditional IRA after age 70 has been eliminated.

• The maximum employee contribution to a 401(k), 403(b), or 457 plan increases from $19,000 to $19,500. If you are 50 or older, you can contribute an extra $6,500, up from $6,000, for a total maximum of $26,000.

• If you are a participant in a Simple IRA plan, you can now contribute $13,500, up from $13,000.

• The income levels used to determine tax deductions and the ability to contribute directly to a Roth IRA have increased slightly. If you made slightly too much for this in 2019, you may be eligible in 2020.

College Planning

If you contribute to an Oregon 529 plan, the tax incentives will change for 2020. Previously, you were able to deduct $2,435 as a single taxpayer or $4,865 if filing jointly. Starting in 2020, a new tax credit will replace this system. Based on the adjusted gross income of the contributor, you will get up to $150 credit as a single taxpayer or $300 for joint filers.

Combine this with the recently passed SECURE Act, which now allows a lifetime maximum of $10,000 to be withdrawn from a 529 plan to repay student loans. If you are out of school but still paying down your loans and have the cash flow to fund a 529, in Oregon or other states that incentivize 529 contributions, you may be able to save some money on your repayment strategy. We’re happy to discuss this further on an individual basis.

Required Minimum Distributions

Many of our clients are familiar with the IRS’s Required Minimum Distributions. The SECURE Act has pushed back your first RMD to age 72 rather than age 70 ½ if you were born July 1st, 1949 or later. Now, if you were born on July 1st, 1949, your first year for RMD will occur in 2021. We keep track of this for all accounts that we personally manage and reach out to you in the year this begins, but if you have questions on accounts held outside our management, feel free to discuss with us.

Estate Planning Changes

Until January 1st of 2020, beneficiaries of qualified accounts (including your 401(k), 403(b), IRA, and many other pre-tax accounts) were able to calculate a minimum amount each year for their total life expectancy, similar to the RMD required for folks aged 72 and over. This was very tax-efficient, as it allowed minimal additions to your top marginal bracket. However, starting in 2020, beneficiaries on these accounts who are over 18 years old must take the entire account out within 10 years. For recent retirees, who have saved much of their working life into a 401(k) or IRA, this may disadvantage your beneficiaries by requiring them to pay a higher percentage of the account in taxes. There are some strategies we can use to minimize the effect, but this will greatly affect the wealth transfer process for today’s retirees.

We are encouraging clients to reach out to their estate attorneys for an update to the estate plan given these changes. If you have a family trust listed as the beneficiary for one of these 401(k) or IRA accounts, this is particularly important.
 
Once you have updated these estate planning documents, please consider sending us copies to keep on file, including wills, powers of attorney, and advanced directives. When a client is in the hospital or has passed away, we often get calls from family members who have heard of us or seen our logo on envelopes and documents. Remember, a power of attorney or advanced directive is only effective if it can be found when it is needed. We would love to be able to put your family’s minds at ease by holding onto these for you.

As always, please feel free to reach out to us with any questions or if there is anything we can do for you.