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Redrick Terry:
It is now time for 4 Your Money. We’re joined by James Nelson of NelsonCorp Wealth Management. Welcome back, James.
James Nelson:
Thank you, thanks for having me.
Redrick Terry:
Of course, thanks for waking up with this early.
James Nelson:
Absolutely.
Redrick Terry:
We’ve recently seen some headlines about some legislation called the Secure Act. What are your thoughts on that, and how might it affect people who are retiring or thinking about retirement?
James Nelson:
Yeah, so the Secure Act would be the biggest change in the retirement plan space since 2006 if it’s passed. Mostly impacting retirees, and we’re going to talk a few of those points here in a minute. Generally speaking, it’s a good thing. It’s got the public’s interest in mind. It’s incentivizing people to save. It’s helping encourage saving.
James Nelson:
We know a lot of Americans aren’t in the position to retire, and it’s meant to encourage and help them get there. There’s huge bipartisan support behind this bill that’s already passed in the House, 417 votes to three. It’s moved to the Senate and will most likely be law here by the end of the year.
Redrick Terry:
You said there were a couple of items in there in particular of interest. Could you go a little bit into that?
James Nelson:
Sure, there’s two key provisions relating to tax deferral, and that’s this chart here. It’s showing three different scenarios. One’s the taxable account here, the light blue line. This is just showing the value of tax deferred accounts. This is IRAs, 401Ks, 403Bs at work. But this blue line here is a taxable account. So, you’re paying taxes each and every year and you can see all of them are assuming the same rate of return, 6% at a 24% income tax bracket. We end up with 380,000 over here on the right side.
James Nelson:
If we skip up to the yellow line, we end up at 574,000. That’s tax deferred accounts. We don’t have taxes chewing away like we do down here. This is the 401K plans. Then same scenario here, except at the end of this 30 year period we took the money out for whatever reason, took the tax and you see 480 in that middle scenario. So, this is showing the impact of tax deferral. It’s a great thing, and a retirement plan.
James Nelson:
The two main changes are relating to these types of accounts. Instead of being able to take money out at 70 1/2 which is the required minimum distribution age right now, that looks like it’s going to get bumped back to age 72. Then the second change is not so good news. It’s the stretch IRA. If you inherit an IRA account, you’re going to no longer be able to stretch that for 20 or 30 years. That’s going to be limited to 10 years.
James Nelson:
Those are the two big changes that people need to be aware of.
Redrick Terry:
What should people be doing differently as a result of this?
James Nelson:
Roth conversions are a big thing. People really should be considering converting some money to Roths if they’re in a fairly low income tax bracket. It’s not only going to help the account owner, but it’s also going to help with beneficiaries.
Redrick Terry:
All right, James. Thanks so much for joining us. We appreciate it.
James Nelson:
Absolutely, thank you.
Redrick Terry:
And if you missed any of our conversation, we’ll make it available for you on our website at OurQuadCities.com.
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