This week, Josh and Austin are talking about the SECURE Act! Recently signed into law this past December, this act is making some major changes to retirement plans. Today Josh and Austin will be discussing the changes it’ll have on your IRA, 401k, 529 plans, and more. If you have any of these accounts, you need to know what changes are headed your way! Listen now to feel more “secure” (ha!) about your retirement plans!
In total it's got about 29 new provisions or major changes in 20 different sections. But Josh and I are here to share some of our thoughts on the key changes that are going to impact you and your retirement plan. Click To TweetTalking Points
[2:16] – Lifetime Income (Annuities) Within Your 401k Plan
[5:38] – Projected Income Payments in your 401k
[8:12] – Multiple Employer Plans (MEPs not Maps) for 401k
[9:49] – You Can Participate in a 401k, Even if You’re Part-Time
[11:34] – Dad Joke of the Week!
[12:40] – Changes to 529 Plans
[15:54] – No Early Withdrawal Penalty from Your IRA if Used for a New Child
[19:09] – Age Changes for RMDs for Your IRA
[21:34] – Changes to QCDs from your IRA
[23:03] – Changes to Inherited (or stretch) IRAs
[27:30] – Tax Credit for Small Businesses (Bonus Change)
[29:09] – 7am Saturday Newsletter
[30:11] – Eight Timeless Principles of Investing
[30:37] – Free Invested Dads T-Shirt!!
Links & Resources
SECURE Act And Tax Extenders Creates Retirement Planning Opportunities And Challenges
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Full Transcript
Intro:
Welcome to The Invested Dads podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
Is this thing on? All right. Hey, hey, hey. It’s Josh and Austin with The Invested Dads podcast here to bring you a special episode where we are going to talk about the SECURE Act. So on December 20th 2019, President Trump signed a bill into law that had just gotten passed from the Senate and earlier in the year the House passed it I believe talking about some major changes coming up to retirement plans and retirement planning. So it’s called the SECURE Act, like I said, which stands for Setting Every Community Up for Retirement Enhancement, right? That’s what it stands for, Josh.
Josh Robb:
I think they added the enhancement at the end just to make it secure.
Austin Wilson:
Instead of SECUR.
Josh Robb:
Yeah.
Austin Wilson:
So I think in total it’s got about 29 new provisions or major changes in 20 different sections. But Josh and I are here to share some of our thoughts on the key changes that are going to impact you and your retirement plan. And we’re not going to talk about everything, but there’s a more detailed article from Michael Kitsis that we’ll link in the show notes that has a little bit more detail on some of these items. But we’re going to hit the ones that we think are most impactful for you guys. So Josh, start us off.
Josh Robb:
All right. So like Austin said, the SECURE Act was something that had been pushed for a while. There’s some pieces in here that some people in our industry were really pushing forward trying to get passed. And then along with it, they’ve added some additional changes into this thing. So again, like Austin said, it just happened right at the end of 2019 and so there’s still being debated and discussed on some of these changes and what it really means. They’re waiting on some kind of recommendation letters from the IRS on how some of this will play out. So as of right now, this is kind of where we’re at and what we’re hearing and seeing. And there’s kind of four major things we’re going to talk through. And again, there’s a lot that impacts our industry, but we really want to focus on things that’ll impact you and your retirement.
[2:16] – Lifetime Income (Annuities) Within Your 401k Plan
Josh Robb:
So the first piece is changes to 401k plans. And so a lot of you will have at your company a 401k plan, and that’s your retirement plan at work. So one of the big changes they have there is they’re now allowing lifetime income within the 401k. So a lifetime income in the 401k really means annuities. And we’ll get into annuities in a separate podcast, really on what annuities are, what they do, what they’re beneficial for, why they’re good, why they’re bad, all that stuff. But for a 401K plan, the big deal was a company that has a 401K plan, they’re the fiduciary, which means they’re responsible for maintaining that, making sure there’s good investments in that plan. They were worried about annuities because if the insurance company struggled or went out of business, they were liable for that because they’re the ones that picked it. So this new law has enabled a safe harbor protection, which protects the fiduciary as long as they do their due diligence and have an annual review of that company and they look for certain things within that company, whether they meet the requirements by the government for insurance regulations, that stuff. They’re protected, they can’t be sued if that insurance company goes out.
Austin Wilson:
So safe harbor as in contrast to a really dangerous harbor, like where your boats get knocked together.
Josh Robb:
Yeah, yeah. So the safe harbor is just a term meaning that in a sense they’re protected. So think of a safe harbor. It protects you from the waves and the wake. And you’re safe.
Austin Wilson:
So take one minute and kind of tease out what we will talk about in more detail in a future episode about annuities. So kind of name a couple of pros, a couple of cons, and just kind of your overall thoughts as is your opinion as a CFP.
Josh Robb:
So this lifetime income is the benefit of the annuity. So within the 401k, a participant could say, “Okay, I have $500,000 in my 401k. I’m looking to retire and I want it to provide an income stream that will not run out during my lifetime or my lifetime and my spouse’s lifetime.” An annuity provides that. So annuity provides a guaranteed stream of income from the start point on through your life. And so that’s the protection piece at this insurance company’s offering, saying, “We’ll take your $500,000 from you. And in exchange, we’ll give you a set monthly amount from now until you pass away.” And so that’s the positive side that somebody looked for saying, “I don’t know how long this 500 lasts me. It would be nice if I could get a guaranteed amount.” So that’s the benefit.
Austin Wilson:
So an annuity company would make money on that, because they would, in a perfect world, have to issue less money than they would make on it, investing it on their own.
Josh Robb:
Right.
Austin Wilson:
Spread.
Josh Robb:
And they get the $500,000 up front so they can invest it and hopefully grow it faster than what they’re paying out to you. So they look at the actuarial tables, what’s your life expectancy, and say, “If that’s the average, hopefully some of the people won’t live that long. Some may live longer.”
Austin Wilson:
That’s a morbid thought.
Josh Robb:
I know. Actuarials are, you know, they run those numbers are very … They run that and think to themselves, “This person may or may not get there. If they don’t, we end up better off. If they live past it, if we can’t grow the money enough, we may be out. But if they have enough people pooled together, we’ll be okay.” And that’s what the insurance company’s really doing is pooling a bunch of people together.
Austin Wilson:
So it’s, yeah, it’s a lot like insurance in general. Yeah. We’ll have a full episode dedicated to annuities and investing in annuities in a future episode. So stay tuned for that. We’ll get to that soon.
[5:38] – Projected Income Payments in your 401k
Austin Wilson:
Another thing that’s coming up that’s a part of the changes to 401k plans is that statements are going to need to show projected income payments, kind of relating to that guaranteed income, as well as the current balance. So right now if you get a statement, it’s going to say, “Josh, your current balance is $498,000 and that’s it.” That’s all. It’s just going to show a dollar. But the new rule is going to say that that has to say, “Hey, that’s going to be $400 per month for the rest of your life or whatever.” Right?
Josh Robb:
Yeah. And if you are an employer that has a pension plan, so like if you’re a teacher and you’re with the government retirement system there in Ohio, it’s the STRS, that has a pension piece and they actually show you a monthly payout for that. And so that’s what they’re trying to get to is a 401k also is saying, “Okay, we want to show you a potential stream of income that could be derived from this.” And annuity could play into that. And I think a lot of times they’re going to use that annuity calculization for that payout. And that’s something I know you and I have discussed is how are they going to make those assumptions? Because there’s a lot that goes into that assumption.
Austin Wilson:
Yeah. That’s the biggest point for me is first of all, I think that this part of the bill isn’t going to take effect right away because the government is still working out the details of what that’s going to look like and what the calculations are going to be. But I hope that they are extremely transparent in that calculation that is going to be required from all 401k plan providers.
Josh Robb:
And is it a set one for everybody or does each 401k plan just have to show you their assumptions in a back page and then they can do whatever they want?
Austin Wilson:
Right. Yeah, I’m hoping that transparency is there, but also I think consistency between plans would be the most beneficial for consumers because if you take a job somewhere else and roll your 401k over, you’re going to be looking at it calculated one way and then you look at the same dollar, roughly the same dollar figure can calculate it a completely different way and have a different number. And I’m hoping that that’s not the case.
Josh Robb:
And I mean the plus side to it, though, is that’s how people live their life. They don’t look at a lump sum and say, “Oh, that’s going to last me with a future discount, a cashflow analysis, this is what I have.”
Austin Wilson:
That’s how I live my life.
Josh Robb:
That’s right. But the average person says, “Okay, what do I get each month? How am I going to live?” They look at it like a paycheck. And so, I think this will be beneficial as long as the assumptions are a conservative assumption. It’ll be able to them to say, “Okay, my social security is going to give me X. I’m going to get this from my retirement plan. Those together, am I going to enjoy my retirement with that income?” So I think it’d be nice. But they did announce it’s going to start 12 months after they complete the review with no timetable on the review.
Austin Wilson:
So 2029 this should go into effect.
Josh Robb:
Who knows?
[8:12] – Multiple Employer Plans (MEPs not Maps) for 401k
Austin Wilson:
Josh, talk about maps.
Josh Robb:
MEPs.
Austin Wilson:
Oh, MEPs.
Josh Robb:
MEPs.
Austin Wilson:
Map.
Josh Robb:
MEP is short for Multiple Employer Plans. And if you are a person working in a small company, this is where you’d see the benefit. So up to this point, to start a 401K plan, it’s kind of cost inhibited for a small company. There’s a lot of startup costs. There’s an ongoing testing that has to happen every year for a 401k plan. So this SECURE Act allows small businesses that are unrelated or unaffiliated to group together and do a 401k plan as a whole. So you could have four or five companies together, all in one 401k plan. So what it does is it divides the cost then. So instead of one small business with maybe three or four employees having to burden the whole cost of running this plan, they could partner with four other ones and say, “Okay, together it’s only one fifth the cost if there’s five companies together, we can afford to do this for our employees.”
Austin Wilson:
So your barriers to providing that as a benefit for your employees are going to be significantly lower if you can find someone to pool the resources with.
Josh Robb:
You used to be able to do that only if you were an affiliated business. So let’s say the owner owned two businesses that were kind of cohabiting together between two things that worked well together. They could do something like that. But now it’s unaffiliated businesses so it really opens up the door for a financial advisor to say, “Hey, I have this plan. Anybody that would love to join that doesn’t really think they can afford the cost can come in and split the cost.” And every time somebody new joins, you’re just dividing that cost. And so it really enables small businesses to say, “You know what, we’d love this additional benefit for our employees. Now we can afford it.”
[9:49] – You Can Participate in a 401k, Even if You’re Part-Time
Josh Robb:
One of the last things within the 401k is for if you’re not full time and you’re part time, there’s a new piece here that allows you to participate. And it’s kind of confusing so I’m going to try to explain this as easy as possible. But the threshold is 500 hours in three 12 month periods. And so, in three years you got to work 500 hours each year for three years. All right, so that’s like half.
Austin Wilson:
That’s like a quarter. That’s like a quarter of employment, right?
Josh Robb:
Yeah.
Austin Wilson:
2080 is the typical.
Josh Robb:
Yeah. But it’s half of what the threshold used to be. It used to be about a thousand hours was kind of that threshold.
Austin Wilson:
10 hours a week is the bogey.
Josh Robb:
Yes. Yeah. And so 500 hours in three 12 month periods. If that happens, then they can participate in the 401k plan, but they aren’t obligated to get the company match. So the company, a lot of times, will match your contributions up to a certain amount. In order to make this beneficial, they remove that obligation for the match for this group of employees.
Austin Wilson:
For part time.
Josh Robb:
So if I was part time and I worked three years and met their requirement, I could then add my own money into the plan, but I would not get the match. So it doesn’t put additional burden on the employer who may have a lot of part time employees and can’t afford to put the match in for everybody. But it allows you to save tax deferred for retirement. Now this starts in 2021. That’s when the actual time starts. So it actually wouldn’t be until 2024 when the first part time person could contribute, if that makes sense. Because you have to have three years and you can’t look backwards, it has to start in 2021. So again, a little confusing, but it’s a benefit for part time employees to say, “Hey, I have some income. I would love to save it if I could. I’m just not eligible.” Now they can be.
[11:34] – Dad Joke of the Week!
Austin Wilson:
Awesome. This is a pause of your regularly scheduled show to bring you the dad joke of the week.
Josh Robb:
Oh, I love dad jokes.
Austin Wilson:
And I want to let everyone know on the record that I did not preview this joke by Josh, so any reaction he has, this is authentic.
Josh Robb:
I’m ready.
Austin Wilson:
All right, Josh, here we go. Dad joke of the week. Why did the dad take a while to decide on a haircut?
Josh Robb:
I don’t know, Austin. Why?
Austin Wilson:
I can’t even say it without laughing. I want to say all one time together because I can’t laugh.
Josh Robb:
Why did the dad take a while to-
Austin Wilson:
Decide on a haircut.
Josh Robb:
Decide on a haircut, okay.
Austin Wilson:
Because he had to mullet over.
Josh Robb:
Mullet over. I love it. I love it. I love dad jokes.
Austin Wilson:
I know. I know. My wife, shout out to Jenna, she actually got me a book called Dad Jokes, terribly good dad jokes, for Christmas. So listeners can expect some of those trickle in once in a while.
Josh Robb:
I love it.
Intermission:
And we’re back with The Invested Dads.
[12:40] – Changes to 529 Plans
Austin Wilson:
All right, next up, 529 plans. So there were some changes around 529 plans. And Josh, take five seconds and just kind of explain what a 529 plan is and then talk about those changes.
Josh Robb:
Yeah. So again, we’re planning on a whole episode on college savings and college planning in general. But 529 plan is a college savings plan where you put money in and it grows tax free. And if you use it for qualified college expenses, which there’s a whole fun stuff on that, it then has no tax on the distribution for those. So it’s a great savings vehicle for college because there is the ability to grow your money without paying any tax and then use that additional amount for college and there’s no tax. So 529 plans are great. I think every state now offers their own plan. The cool thing is you don’t have to use the one in your state. You can choose whatever you want based on benefits. Your state may offer some incentive to use theirs where you get some sort of tax deduction on your state taxes. But in general, it’s a great way of saving for college expenses.
So one of the things that changed here, and again, there’s a lot that goes on 529s. We’ll talk about that in our episode. But this one is just focusing on what changed. And what changed was they added the ability to use your 529 plan for college loans or college debt. So in other words, if I have a 529 plan, I’m done with school so I have money leftover, I could then use that to pay off those loans. Up to this point, you are not able to, it was only for incurred college expenses. They cap that at $10,000 limit per account. But they do allow, like a lot of other things within a 529, you can roll it or move it for any direct relative of the beneficiary. So if my son is the beneficiary, it can be used for any direct relative of my son. So me, my wife, a brother or sister and it even goes to cousins and stuff as well.
Austin Wilson:
The funny provision to me is that if you had kids and you’ve been socking away money in 529 accounts all for 10, 15 years while they were young and you still yourself as the parent have student loans, you can then rob your kids’ college account to pay for your student loans.
Josh Robb:
Yep. And I think this really was created for that idea of there’s a lot of college debt out there and there may be some unused college funds floating around. An example of that could be, so I have a son and let’s say he gets a full ride scholarship, but I’ve been saving a 529 plan.
Austin Wilson:
To be like his dad in college athletics.
Josh Robb:
Right, yeah. Right. And so, he doesn’t need any money now because he’s covered with scholarships. Now the 529 allows me to withdraw what would have been the cost and I could take it out. But another option would be I could roll this and then use it to pay off debt for somebody else. So I could see benefits or uses for it, but ideally, you’d be using it for expenses incurred for the beneficiary, not getting debt and then paying off that debt later. You’d just use it for the expense incurred.
Austin Wilson:
Or he could then use it for his kids.
Josh Robb:
Yeah, you could keep it or roll it to anybody, whatever.
Austin Wilson:
So, interesting.
Josh Robb:
It’s available and can be used out there.
[15:54] – No Early Withdrawal Penalty from Your IRA if Used for a New Child
Austin Wilson:
So I think one of the key changes with the SECURE Act that is going to impact the most people probably is the changes around the IRA and what you can do with that. So there’s a handful of different changes that we’re going to talk about. But number one, a new change that you can do is if you are either A, having a child or B, adopting a child, for as many times as you either have a child or adopt a child. So you can have 100 kids and you can withdraw, penalty free, $5,000 per adoption or birth out of your IRA. Now this does still count as taxable income. So it’s taxable at your normal income tax rate. But what you’re avoiding at this point is the 10% early withdrawal penalty that you would have had associated had you done that under the old rules.
Josh Robb:
Yep. And so, they have some caveats in there. It has to be an incurred expense. You can’t pull it out prior to the expense. So you can’t do for the early adoptions, you have to wait until the adoption’s completed before you could withdraw it to reimburse yourself, in a sense, for those costs. And it works for IRAs and I believe 401Ks, too, are included in this. So really, what you’re doing is just makes it a qualified distribution, meaning there is no penalty even if you’re not 59 and a half when those penalties go away.
Austin Wilson:
Now, I think one of the caveats also is that has to be used for humans.
Josh Robb:
I don’t think pets-
Austin Wilson:
So I don’t think you can be like, “I’m adopting an Australian shepherd so I need $5,000.” That might be in the next iteration, but for now I don’t think that’s on the table. And then the RMD age changed as well, Josh, right?
Josh Robb:
Yeah. So, oh, back to the adoption. There is some stuff they’re working out, but there may be ability to repay that back in, as well, on top of your normal contributions. And so, they may have the ability, if you’re just, in a sense, borrowing the cost and then you’re able to put it back in later. They’re still working on that and how that works. There’s not a lot of details yet on that, but that could come down the road. Because again, borrowing from retirement for anything is usually frowned upon. So if that’s kind of your last resort-
Austin Wilson:
Whether or not it’s frowned upon by the government on the legal side of things, it’s frowned upon by your financial advisor probably.
Josh Robb:
But this, in sense, long-term money for retirement to take it out for shorter term expenses, even for something as great as a birth or an adoption, just makes it harder to recover from. Because that compounding growth is reduced over that time frame. And that’s, for most people, your IRAs and 401ks are your retirement accounts. There’s not as many pensions out there. It’s up to you to save for it. And so to take those withdrawals out and making it a little easier could hurt some people down in the long run.
Austin Wilson:
Now to be devil’s advocate, because sometimes that’s a good thing to have just to hear the opposite side of the thing, I would wonder if the benefit to this is to avoid people taking on debt when they have those hospital bills for birth costs or whatever, instead of pulling it from an asset they already have. While it’s not a great thing to pull from a appreciating retirement savings asset, if you are avoiding a bunch of debt, that could be a benefit to it.
Josh Robb:
Yeah. Are 401K loans allowed? Is that a better … Because you’re forced to repay that anyways. Is that a better … So there’s a lot of stuff out there. But you’re right, yeah. There’s reasons why it would make sense to do that.
[19:09] – Age Changes for RMDs for Your IRA
Austin Wilson:
So back to RMDs or Required Minimum Distributions. That age has now been moved from 70 and a half to 72. So it’s moved back 1.5 years. It was always weird to me that that was at a half a year and that was due to the time whenever that was made back in the day the actuarial tables said that that was when it needed to happen.
Josh Robb:
People thought it’d be fun to make it more complex.
Austin Wilson:
One half year. So everyone’s calculating based on a 365 days and this is when I was born. Divide that by two. That half year is gone. So I think just to have a whole year, this is a big win.
Josh Robb:
Yes. It’s a lot easier to understand. People know when they turn 72. No one celebrates the 70 and a half birthday, or at least most people don’t I guess. An RMD is required in the year you turn that. So if I turned 70 in July 2nd, my 70 and half isn’t until January of the next year. So that’s the year I have to take my required distribution. So it’s really weird because that’s actually the year I’m turning 71 by calendars. It’s really confusing. So now they moved to 72. Easier to understand. It also gives you a couple … A little bit longer to grow that money, tax deferred. But that required distribution still has to come out. You got to pay the tax on the withdrawal. But the nice thing is they give you an extra year and a half.
Austin Wilson:
Exactly. And you can now contribute to an IRA after age 72. So yeah, there’s another … You know, you’re getting to the ability to have to take your money out later, but you’re also getting the ability to contribute a little longer. So that’s another benefit that’s coming from that.
Josh Robb:
So prior to this law, you had to stop contributions once you hit 70 and a half. When the required distributions happened, you could no longer contribute even if you had earned income. They’ve removed that and said at any age you can contribute as long as you have the earned income that matches the criteria. And so, for the 72 required distribution and the 72 for contributions, it’s nice that there’s just a little more flexibility, again, with retirement savings. And with people working longer, it gives you that nice benefit there that if you are working longer and you can contribute, you can add a little more into that.
Austin Wilson:
You can still do a spousal contribution as well, right?
Josh Robb:
Yes. Yep. So the spousal is if you file jointly, they don’t have to have earned income as long as you together have earned income.
[21:34] – Changes to QCDs from your IRA
Austin Wilson:
Gotcha. So what about QCDs?
Josh Robb:
Yeah. So QCDs are Qualified Charitable Distributions.
Austin Wilson:
There are so many acronyms in this business.
Josh Robb:
A lot. So what that is, and there’s a great podcast right there on just the tax advantages of giving through your IRA, but in a sense, you give from your IRA directly to a charitable organization and that is then non-taxed on your income. It does not show as income as a distribution. And so the benefit there is that it’s the most efficient way to give once those are available. You have to be 70 and a half. So here’s another thing the IRS did. 70 and a half for a required distributions is in the year you turn 70 and a half. So if I turned 70 and a half in November, January 1, I could start my required distribution. For qualified charitable distributions at 70 and a half, I actually had to be 70 and a half by the day.
Austin Wilson:
On the day.
Josh Robb:
Yes. So I can’t, in January, take my QCD. I have to wait until the day after I turn 70 and a half to start my QCDs.
Austin Wilson:
So that’s another good reason that 72 is in effect on the RMD side of things.
Josh Robb:
That fixes that.
Austin Wilson:
So that fixes half of it.
Josh Robb:
They did not change the QCD at all. So it still stays 70 and a half. So in theory, at 70 and a half, someone could start giving to charity through the IRA even before their required distribution. And you’re still limited to $100,000 per year of a qualified charitable distribution, but you wouldn’t have to worry about the RMD at that point. So there’s a little bit of room in there between the two. But long story short, it’s a great way to give and now they haven’t really touched that at all. Nothing’s changed.
[23:03] – Changes to Inherited (or stretch) IRAs
Austin Wilson:
And I think the most controversial IRA change that is in this bill is relating to inherited IRAs, also known as stretch IRAs. And yeah, Josh, go ahead and explain that difference, the biggest change that could impact a lot of people.
Josh Robb:
So up to this point, everything’s been a positive or at least a forward movement in what they were trying to do to help the average person in retirement. This is how they’re going to pay for all those changes. So moving from 70 and a half to 72 took away a lot of tax from the IRS. The government lost revenue by stretching that out a little farther, when you had to start. So to pay for that, they decided that what they’re going to do is eliminate the ability for someone who receives an inherited IRA, so if my parents pass away and I receive an IRA, I was able to, prior to this law, to take required distributions over my life expectancy, not my parents. So if my parents pass away at 80, their life expectancy was shorter than me at let’s say 50. So that 30-year difference I get to take and take fewer or lower distributions for longer. And now the IRS says, “Nope. What you have to do now is if you receive an inherited IRA,” and we’ll walk through some of the caveats, “If I receive an inherited IRA, I have 10 years to get the full amount out of the inherited IRA, pay tax on it. I have to get it out of that tax-free or tax deferred growth.”
So the people who this does not apply to are spouses. So the law, prior to this, and this continued for, if I’m a spouse and I receive an IRA, inherited IRA, I can roll it into my IRA and do it off of my life expectancy and treat it as my asset. And so, that remains the same. For someone who’s within 10 years of the person they receive it from, they also can do the life expectancy. The IRS says you guys were close enough, you’re not really taking any big advantage on it. They’re going to allow you to continue to do that. Or if you’re disabled. That’s the other exception to this where they allow the regular life expectancy. But for everybody else, it’s a 10-year window. You have to pay the tax, get it out of the IRA. It doesn’t have to be equally through those 10 years. It could be in year one, it could be year five, year seven, year ten, doesn’t matter. But by the 10th year, it’s all out.
Austin Wilson:
So really, it’s in your best interest probably to pick the lowest tax year to do that in.
Josh Robb:
Or spread it out.
Austin Wilson:
Yeah, or spread it out or wait until you, if you’re going to retire in that 10 year period or something, that next year would be better or whatever your lowest income year would be or yeah, or spread it out.
Josh Robb:
And so, there’s going to be a lot of tax planning that will need to happen, and estate planning. Because a lot of people were using these stretch IRAs and they were building them around some specialized trusts to do this. And they’re kind of these like see-through conduit trusts where they allowed the IRA to stay an IRA but the trust dictated those income distributions. Well now that there’s not these required distributions, but just a timeframe, it kind of nullifies though. So there’s going to be a lot of adjustments made for a lot of tax planning and estate planning.
The other piece too is, when we talk through this, is if you are a minor and the child of the person, so not a grandkid or anything like that, but if you’re a child of the person you inherit from and a minor, they require life expectancy RMD. So the regular off my age, the required distributions until you reach whatever that full age of majority is. So 18 for most states. Once I become an adult and in that sense I then have that 10 year window start. So at 18 to 28 then I had to get the rest of the money out.
Austin Wilson:
Right, right.
Josh Robb:
So again, that’s a little confusing for tracking all that. But more often than not, unless there’s some tragedy, you’re going to be over the age 18 when you receive those inherit IRAs, in general.
Austin Wilson:
So could this make Roth conversions more lucrative as in financial planning for a lot of people?
Josh Robb:
Yeah. You know, if I’m the IRA owner and I’m in a low tax bracket, it may make sense for me to pay in a lower tax bracket chunks of that IRA to get it out of a traditional IRA, move it to a Roth IRA, it will grow tax free. And in those distributions for whoever inherits it, it will be tax free as well. And so, that would be a benefit. It’s just a matter of saying, “Okay, who has the better tax bracket? And who would be more beneficial paying that tax?”
[27:30] – Tax Credit for Small Businesses (Bonus Change)
Austin Wilson:
Right, right. All right. The fourth and final, and we’re going to call it a bonus little discussion point around the SECURE act, is that this new law is going to increase the tax credit for small businesses to set up new retirement plans for their employees. Now it used to be, and currently is until this is actually fully enacted, used to be $500, now that’s $5,000. So the tax credit for these small businesses has grown, gone up 10 fold, which is huge.
Josh Robb:
Yeah. And it’s up to $5000. So whatever their expenses are up to $5000. So if it only costs me $2000 to start this plan, I can’t take a $5,000 credit on something I didn’t incur.
Austin Wilson:
That would be great.
Josh Robb:
That would be nice. But what it does do is, again, for the first three years of the plan, it gives the ability for a small business, small company to kind of offset those costs.
Austin Wilson:
And I think if you couple this with the above, with what we talked about earlier-
Josh Robb:
The grouping, yeah, the MEP.
Austin Wilson:
The MEP, not map, Austin. MEP. If you group those two together and you say, “Hey, this is really going to make it much more lucrative and much more attainable for small businesses to offer this as a benefit, as part of the package for their employees.” So I think that’s a very good thing there.
Josh Robb:
And then the other benefit is if they do auto enrollment, meaning if I joined the company, I’m automatically in the 401k, I have to opt out, which in my opinion is a great thing to have because most people need to be saving and forcing them into things sometimes is the best way to do it. They get an additional $500 credit. And so, there’s some nice things there to give an incentive to companies to offer these plans.
[29:09] – 7am Saturday Newsletter
Austin Wilson:
So next up, I just wanted to say that I got a lot of this information … So as I’m on the research side of things, I don’t necessarily deal with clients in the financial planning as much as Josh does, which is why he was instrumental in putting some of this discussion together today. So thanks for the preparation on that. But I got some high-level information and a great summary from a newsletter that I subscribe to called 7am Saturday that is actually provided and sent out weekly from our colleague Adam Zuercher. And so we’ll throw the link in the show notes below on where you can sign up for that. But it’s a really nice weekly sent out at 7:00 AM on Saturday newsletter where you can talk about financials and performance and stuff that’s going on like that, as well as financial planning topics like this one. So that was something where I got some very high-level wonderful summary of something that was easy to digest and understand as someone who’s not as in the weeds maybe as Josh is. So if you’re interested, click on the link below. You can totally sign up for that newsletter and get a nice email once a week with some good information on that.
[30:11] – Eight Timeless Principles of Investing
Josh Robb:
Also, make sure you check out our free gift. If you go to our website, theinvesteddads.com, there’s a eight principles of timeless investing. It’s a free, free gift. You don’t have to do anything besides give us your email so we can send it to you. But there’s eight overarching investment themes there, to help you keep on track for your long-term goal. So check it out. It’s free on our website, theinvesteddads.com.
[30:37] – Free Invested Dads T-Shirt!!
Austin Wilson:
And finally, to help us grow this podcast, we want to help a lot of people, we want to help you, we need your help. So we’re doing a swag giveaway, got to love swag, to create some buzz through Apple Podcasts. So, couple things you need to do to get some swag, which that swag is unofficial. The Invested Dad’s tee shirt, which are pretty awesome. So what you need to do is leave us a review on Apple Podcasts, screenshot that review, and then email the screenshot to hello at theinvesteddads.com. And then we’ll follow up with the first 25 subscribers to get their shirt size and mailing address to hook you up with your shirt. And these shirts are great. They’re amazing, they look awesome, they’re super soft and comfortable. I’m about to bust mine out, so it’s pretty awesome. Shout out to Flag City Clothing in Findlay, Ohio for putting those together for us. And I do want to note that unfortunately, we can’t mail these all over the world due to customs and costs and stuff like that. So only for North American subscribers.
Josh Robb:
Those customs, you know?
Austin Wilson:
Those customs. And we’re not talking custom shirts, those stinking customs. Trade war, hashtag. I don’t know if that would have anything to do with it, but it is expensive. So North American subscribers only. So U.S., Canada, Mexico, we’ll send you a shirt. Glad to do that. But yeah, so leave us a review on Apple Podcasts. We’re so excited if you would do that for us.
Josh Robb:
And in case you missed it or just started listening to us, check out our recent episode where we talk about dividend investing for dummies. So that’s where we talk about what is dividend investing, why it matters, and what are different approaches to investing for long term success.
Austin Wilson:
And we’re not calling you dummies, it’s mostly us.
Josh Robb:
Yes.
Austin Wilson:
Or dividend investing for dads or invested dads, I don’t know. Call it what you want but check it out. It’s another recent episode and it’s really great. So thank you for your time. Thanks for listening. If you like what we’re doing, just click that subscribe button. We’d love to have you join us as we keep publishing these episodes every week. Thanks very much.
Josh Robb:
Yep. Talk to you later.
Austin Wilson:
Have a great day. Bye.
Outro:
Thank you for listening to The Invested Dads podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review. Click subscribe and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin, or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
