The SECURE Act: Is It Good For You Or Bad For You?

Posted on August 19, 2019 by James Lange in Beneficiary Designations, Current Events, Estate Planning, Estate Tax, Government Programs, Income Tax, Inherited IRAs, IRAs, Retirement Plan Options, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Stretch IRA, Traditional IRA and tagged death of the stretch ira, James Lange, Retirement, Retirement Planning, Roth IRA, Roth IRA Conversion.

Is The SECURE Act Good for You or Bad For You by CPA/Attorney James Lange on Forbes.com

Will you be able to retire safely under the SECURE Act?

This blog post is republished with permission from Forbes.com

My previous post introduced the potential consequences of the SECURE Act, which is being promoted as an “enhancement” for IRA and retirement plan owners. This is because it includes provisions allowing some workers to make higher contributions to their workplace retirement plans. I think it is a stinking pig with a pretty bow, so I wanted to give retirement plan owners the good and bad news about it.

I am a fan of Roth IRAs because they allow you to have far more control over your finances in retirement than you might have otherwise had. You are not required to take distributions from your Roth IRA, but the good news is that they’re not taxable if you do take them. These tax benefits can be a critical factor for seniors, especially if you are suddenly faced with costly medical or long term care bills. Saving money in a Roth account can offer financial flexibility to many older Americans – and one good thing about the SECURE Act is that it can help you achieve that flexibility. Here’s how.

The Good News About The SECURE Act

Under the current law, you are not allowed to contribute to a Traditional IRA after age 70½. (You can contribute to a Roth IRA at any age as long as you have taxable compensation, but only if your income is below a certain amount.) The age limitation for making contributions to Traditional IRAs is bad for older workers – and that’s an important point because the Bureau of Labor Statistics estimates that about 19 percent of individuals between the ages of 70 and 74 are still in the workforce. The SECURE Act eliminates that cutoff and allows workers of any age to continue making contributions to both Traditional and Roth IRAs.

That same provision of the SECURE Act offers a hidden bonus – it means that it will also be easier for older high-income Americans to do “back-door” Roth IRA conversions for a longer period of time. The back-door Roth IRA conversion, currently blessed by the Tax Cuts and Jobs Act, is a method of bypassing the income limitations for Roth IRA contributions. The current law prohibits contributions to a Roth IRA if your taxable income exceeds certain amounts. Those amounts vary depending on your filing status. But even if you are unable to take a tax deduction for your Traditional IRA contribution, you can still contribute to one because there are no income limitations. Why bother? Because, assuming you don’t have any other money in an IRA, you can immediately convert your Traditional IRA to a Roth IRA by doing a back-door conversion. That’s a good thing because the earnings on the money you contributed can then grow tax-free instead of tax-deferred.

Here’s more good news. The current law requires Traditional IRA owners to start withdrawing from their accounts by April 1^st of the year after they turn 70 ½. These Required Minimum Distributions (RMDs) can be bad for retirees because the distributions are taxable. The increase in your taxable income can cause up to 85 percent of your Social Security benefits to be taxed and can also move you into a higher tax bracket. And once you begin to take RMDs, you are no longer allowed to make additional contributions to your account, even if you are still working. The SECURE Act increases the RMD age to 72, a change which will allow Traditional IRA owners to save more for their retirements.

There’s a hidden bonus in this change as well. Increasing the RMD age to 72 will allow retirees more time to make tax-effective Roth IRA conversions. What does that mean? Once you are required to take distributions from your Traditional IRA and your taxable income increases, you may find yourself in such a high tax bracket that it may not be favorable to make Roth IRA conversions at all.

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The Hidden Money Grab In The SECURE Act

Posted on July 9, 2019 by James Lange in Current Events, Estate Planning, Inherited IRAs, IRAs, Roth 401(k), Roth IRA, Roth IRA Conversions, Stretch IRA, Traditional IRA and tagged Beneficiaries, death of the stretch ira, James Lange, Roth IRA, Roth IRA Contributions, Roth IRA Conversion.

Capitol Building Washington DC used in Pay Taxes Later Blog Photo Courtesy of Delgado Photos

*Please note this blog post is a repost with permission from Forbes.com

On May 23, 2019, the House of Representatives overwhelmingly passed the SECURE Act (Setting Every Community Up for Retirement Enhancement). A more appropriate name for the bill would be the Extreme Death-Tax for IRA and Retirement Plan Owners Act because it gives the IRS carte blanche to confiscate up to one-third of your IRA and retirement plans. In other words, it’s a money grab.

The SECURE Act is wrapped with all kinds of goodies that are unfortunately of limited benefit to most established IRA and retirement plan owners. But if you have an IRA or a retirement plan that you were hoping you could leave to your children in a tax-efficient manner after you are gone, you need to be concerned about one provision in the fine print that could cost them dearly. Non-spouse beneficiaries of IRAs and retirement plans are required to eventually withdraw the money from its tax-sheltered status, but the current law allows them to minimize the amount of their Required Minimum Distributions by “stretching” them over their own lifetimes. This is called a “Stretch IRA”. Distributions from a Traditional Inherited IRA are taxable, so the longer your beneficiaries can postpone or defer them (and hence the tax), the better off they will be. The bad news is that the government wants their tax money, and they want it sooner than later. The ticking time bomb buried in the SECURE Act is a small provision that changes the rules that currently allow your beneficiaries to take distributions from Traditional IRAs that they have inherited and pay the tax over their lifetimes, virtually cementing “the death of the Stretch IRA.” (The provisions of the SECURE Act also apply to Inherited Roth IRAs, but the distributions from a Roth IRA are not taxable.)

If there is any good news about the SECURE Act, it’s that it does not require your beneficiary to liquidate and pay tax on your entire Traditional IRA immediately after your death. For many people, that would be a costly nightmare because they would likely be bumped into a much higher tax bracket. Under the provisions of the SECURE Act, if you leave a Traditional IRA or retirement plan to a beneficiary other than your spouse, they can defer withdrawals (and taxes) for up to 10 years. (There are some exceptions for minors and children with disabilities etc.) If you leave a Roth IRA to your child, they will still have to withdraw the entire account within 10 years of your death, but again, those distributions will not be taxable. But any way you look at it, the provisions of the SECURE Act are a huge change from the old rules that allow a non-spouse heir to “stretch” the Required Minimum Distributions from a Traditional Inherited IRA over their lifetime and defer the income tax due.

That’s not the end of the bad news. Once your beneficiary withdraws all the money from your retirement account, it will no longer have the tax protection that it currently enjoys. In other words, even if your children inherited a Roth IRA from you and the distributions themselves weren’t taxable, the earnings on the money that they were required to withdraw are another story. Even if they wisely reinvest all the money they withdrew from their Inherited Traditional or Roth IRA into a brokerage account, they’re still going to have to start paying income taxes on the dividends, interest and realized capital gains that the money earns.

I know there are readers out there who are thinking “it can’t be all that bad”. Yes, it is that bad. Here is a graph that demonstrates the difference between you leaving a $1 million IRA to your child under the existing law, and under the SECURE Act:

Child Inherits Stretched IRA Under Existing Law versus Child Inherits 10 Year IRA Under SECURE Act Reprinted with Permission from Forbes.com for Pay Taxes Later website

Child Inherits Stretched IRA Under Existing Law versus Child Inherits 10 Year IRA Under SECURE Act – James Lange

This graph shows the outcome if a $1 million Traditional IRA is inherited by a 45-year old child, and the Minimum Distributions that he is required to take are invested in a brokerage account that pays a 7 percent rate of return. Other assumptions are listed below*. The only difference between these two scenarios is when your child pays taxes! The solid line represents a child who can defer (or “stretch”) the taxes over his lifetime under the existing rules. At roughly age 86, that beneficiary who was subject to the existing law in place still has $2,000,000+. The dashed line represents the same child if he is required to take withdrawals under the provisions of the SECURE Act. At age 86, that same beneficiary has $0. Nothing. Nada. The SECURE Act can mean the difference between your child being financially secure versus being broke, yet Congress is trying to gloss over this provision buried in the fine print. I don’t think so!

The House of Representatives passed the SECURE Act by an overwhelming majority, so the probability that the Senate will pass a version of this legislation is quite good. In 2017, the Senate Finance Committee recommended the Death of the Stretch IRA by proposing the Retirement Enhancement and Savings Act (RESA). In true government fashion, RESA was unbelievably complicated. It allowed your non-spouse beneficiaries to exclude $450,000 of your IRA and stretch that portion over their lifetime – but anything over that amount had to be withdrawn within five years and the taxes paid. And if you had more than one non-spouse beneficiary, the amount that they’d be able to exclude from the accelerated tax would have depended on what percentage of your Traditional IRA they inherited. Imagine trying to plan your estate distribution around those rules!

The Senate is now floating an updated RESA 2019 that seems to say that it will change the original exclusion amount to $400,000. It will be a good change if it is passed. That is because instead of each IRA owner getting a $400,000 exclusion, the new version includes language to allow a $400,000 exclusion per beneficiary. When I first read that provision I thought I had either read it wrong or that it was a typo. That little detail would be extremely valuable (and make estate planning for IRAs and retirement plans far more favorable), especially for families with more than one child. But even in the Senate version, anything over and above that exclusion amount will have to be distributed (and the taxes paid) within five years of your death (instead of ten years like the House version).

Unfortunately, our “peeps” think the House version of the bill (which has a 10-year deferral period, but no exclusion) will be what eventually becomes law. This is particularly troubling because the Senate version would allow room for far more creative planning opportunities (and tax savings, because of the $400,000 per beneficiary exclusion). As of the time of this post, Senator Cruz is attempting to hold up the bill, but his reasons have nothing to do with the fine print that affects Inherited IRAs. The original version of the Act contained provisions about college tuition (Section 529) plans, but those provisions were stripped in the version the House voted on and Senator Cruz wants them restored. Unfortunately, no one is arguing about the biggest issue with the SECURE Act, which is the massive acceleration of distributions and taxes on your IRA after your death. And unless someone in Congress objects to the provision in the SECURE Act about Inherited IRAs, your non-spouse beneficiaries will find out the hard way that their elected officials have quietly arranged to pick your pockets upon your death.

I have been a popular guest on financial talk radio lately. Many of the hosts want to blame one political party or the other. I blame all of Congress. This is one of the few truly bipartisan bills that has potential devasting consequences, at least for my clients and readers, and it is highly likely to pass both sides of Congress. I wonder how many of our legislators in the House actually read this bill or understood what is was they voted for. Did they realize they are effectively—by accelerating income-tax collection on inherited IRAs and other retirement plans—imposing massive taxes on the families of IRA and retirement plans owners – even those with far less than a million dollars? Or perhaps they did understand it and hoped that the American public wouldn’t.

If you can’t tell by my tone, I am upset. I am also motivated to examine every strategy that we can use to legally avoid, or at least mitigate, the looming hammer of taxation on your Traditional IRAs and retirement plans. I’m going to address these strategies in a series of posts, so please read them to see how this proposal could affect someone in your specific situation. Even though the Senate version has a five-year tax acceleration instead of a ten-year, the Senate version could be better for most readers because of the value of the exclusion – especially if you have multiple beneficiaries.

Please check for follow-up posts on this subject. I will show you some strategies to protect your family from the Death of the Stretch IRA and keep more of your hard-earned money in your hands.

James Lange

Assumptions used for Graph

$1 Million Traditional IRA inherited by 45-Year Old Married Beneficiary
7% rate of return on all assets
Beneficiary’s salary $100,000
Beneficiary’s annual expenses $90,000
Beneficiary’s Social Security Income at age 67 $40,000

Recharacterizing Roth IRA Conversions? – Your Ace in the Hole When the Death of the Stretch IRA Passes?

Posted on August 24, 2017 by James Lange in IRAs, QTIP Trusts, Roth 401(k), Roth IRA, Roth IRA Conversions, Stretch IRA and tagged death of the stretch ira, end of the stretch ira, Finance, Financial Advisor, inherited ira, James Lange, new ira laws, Retirement, risk, Roth IRA, Roth IRA Conversions, roth ira recharcterization, stretch ira, stretch ira 2017, stretch ira rules, stretch roth ira.

What Are The Risk of Roth IRA ReCharacterizations?

This post is the last in a series about how you might be able to use Roth IRA conversions as a defense against the Death of the Stretch IRA.

Disclaimer: Please note that the Tax Cuts and Jobs Act of 2017 removed the ability for taxpayers to do any “recharacterizations” of Roth IRA conversions after 12/31/2017. The material below was created and published prior the passage of the Tax Cuts and Jobs Act of 2017.

How does a Roth IRA Conversion Work?

Suppose you have an IRA worth exactly $1 million, and that it happens to be invested equally in ten different mutual funds of $100,000 each. Then suppose we run the numbers for you and figure out that $100,000 is the optimal amount for you to convert to a Roth IRA. How does a Roth IRA Conversion work?

Well, one idea would be to start by ranking your funds according to how much you expect them to fluctuate in value. Maybe you are holding a portion of your IRA in Certificates of Deposit at your bank. Most people would expect that money to be “safer” because it generally doesn’t fluctuate in value. Then suppose you have a portion of your IRA invested in large cap stocks. You’ve noticed the value changing as the stock market moves up and down but, in your case, we’ll say this fund fluctuates an “average” amount compared to your other holdings. Then suppose that you also a portion of your IRA invested in small cap stocks, and that fund has been known to lose 20 percent of its value overnight. We’ll call that one the “riskiest.”

So which part of your IRA should you convert? You could convert the CDs or the ones that you consider to be the safest. Or you could convert the small cap stocks – the one you consider to be the riskiest. Maybe you’d like to convert part of each fund that you own. Let’s look at the possible outcomes.

You can certainly convert your CDs but, in my opinion, going through all that paperwork to avoid paying taxes on the one or two percent you’ve probably earned on them doesn’t seem worth the time or trouble. What about converting a little bit from each fund you own? I’d prefer that to converting the CDs, but it still seems like more work than necessary. What about your “riskiest” fund – the one that has the value that fluctuates wildly? Let’s assume that you converted $100,000 of that fund. What position might you be in a year down the road?

Well, suppose that fund doubles in value. You now have a Roth IRA worth $200,000 but you only had to pay tax on a $100,000 conversion. Good for you! But suppose the fund went down in value, and now you have a Roth IRA worth $50,000. Worse yet, you’ve paid $25,000 in income taxes, and now you’re really mad at me.

Recharacterize Your Roth IRA Conversion

Remember, as long as you act by the October tax deadline, you can recharacterize, or undo, your conversion. This flexibility can give you enormous peace of mind while you’re waiting for the details of the Death of the Stretch IRA to be finalized. A recharacterization will NOT get back the money your investment may have lost – you will need to wait for the market to come back up for that. What the recharacterization can do is get back the money you paid in income taxes, if the account goes down in value.

A Risk of Roth IRA Conversions

As beneficial as Roth IRA conversions and recharacterizations can be, there is always one risk I make clients aware of when discussing them. It has to do with the IRS itself. Have you ever known anyone who has gotten tied up in an endless and stupid loop of government red tape? Let me tell you about a married couple I know, who have always filed jointly. The wife, whose name has always been listed second on the tax return, started a consulting business and, as she was required to, made an estimated tax payment for the income she earned. The couple filed a joint return and waited for their refund to arrive. They finally received a letter from the IRS and opened it, only to find that there was no refund enclosed. Worse yet, there was a letter saying that no refund would be coming because they had overstated the amount of tax they had paid – a transgression that not only caused the IRS to completely wipe out their refund but add a significant amount of penalties and interest to their tax bill.

Armed with copies of canceled checks, the wife went down to the local IRS office and demanded they retract their letter – which they eventually did. But do you want to know why it happened in the first place? When the wife made the estimated tax payment for her business, she paid it using her own Social Security number because that was the number shown on the 1099s she’d received for her consulting work. Unfortunately, when they received her check, the IRS didn’t recognize her as a taxpayer. Even though she’s always filed jointly with her husband, her name and Social Security number were listed on the second line of the return, not the first. And because hers was not the first name – even though it was a joint tax return – the IRS could find no record of her, and her tax payment just went into a big black hole!

Unfortunately, we have found that the IRS sometimes has trouble putting two and two together. If both your conversion and recharacterization forms aren’t filled out exactly right, you could risk getting a nasty letter in your mailbox. We fight those battles with the IRS on behalf of our clients, but if you’re a do-it-yourselfer, you need to know that it’s not unheard of for them to have a record of just one form or the other – but not both. If it happens to you, you need to stick to your guns and get it sorted out. A Roth IRA conversion can be your best defense against the Death of the Stretch IRA, and you can change your mind as long as you recharacterize by the deadline!

Thanks for reading, and stop back soon!

-Jim

For more information on this topic, please visit our Death of the Stretch IRA resource.

P.S. Did you miss a video blog post? Here are the past video blog posts in this video series.

4 Reasons Why We’re Excited that Retire Secure! is Interactive on the Web!

Posted on October 29, 2015 by James Lange in 401(k), Beneficiary Designations, Economy, Estate Planning, Index Investing, IRAs, Lange’s Cascading Beneficiary Plan, Life Insurance, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Social Security, Tax Law, Traditional IRA and tagged 401(k), Asset Management, Beneficiary Designations, Estate Planning, Financial Planning, IRA, James Lange, Pennsylvania, Pittsburgh, Retire Secure, Retire Secure! A Guide to Getting the Most out of What You've Got, Retire Secure! Third Edition, Retirement Planning, Roth IRA, Roth IRA Conversion, Roth IRA Conversions, Social Security, Western Pennsylvania.

If you haven’t made your way to www.langeretirementbook.com yet, now is the time!

Here at the Lange Financial Group, LLC, we are very excited to bring you an interactive version of Retire Secure! A Guide to Getting the Most Out of What You’ve Got.

Reason #1 – The entire book is on this website. Yes, all 420 pages of the book, including the front and back covers, all about the best strategies for retirement and estate planning.

Reason #2 – The book is divided into chapters for ease of reading. Meaning, you don’t have to flip through 400-some pages to get to Chapter 11 – The Best Ways to Transfer Wealth and Cut Taxes for the Next Generation.

Reason #3 – We honestly haven’t seen anything like this before. Granted, I’ve read magazines on viewers where you can flip the pages as you read. But not a website for a book that includes a viewer, as well as a forum where readers can engage with each other.

The comments are moderated by the Lange Financial Group, LLC staff and myself. One of us will reply to your comment as soon as we can. To leave a comment, all you need to do is connect with your Amazon, Facebook, or LinkedIn account. This measure is for your protection, as well as ours. We don’t want spammers posting comments or incorrect information about such an important topic.

Reason #4 – We are hoping this interactive website encourages you to purchase the book! Retire Secure! is available from Amazon and JamesLange.com. Once you’ve read the book, feel free to return to LangeRetirementBook.com to ask questions, as well as Amazon and Goodreads to review the book for the benefit of others.

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The Death of the Stretch IRA: It’s Time to Review the Retirement Plan Beneficiary Rules

Posted on May 28, 2015 by James Lange in Beneficiary Designations, IRAs, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Traditional IRA and tagged Beneficiary Designations, James Lange, Retire Secure Book, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Retirement Planning, Roth IRA, Tax Law, Trusts.

The Death of the Stretch IRA, James Lange Those of you who have been following me for a while know that that one of my most cherished mantras is “Pay Taxes Later!” An extension of that mantra was my recommendation that, upon your death, your beneficiaries continue to take advantage of the minimum distribution rules to “stretch” your IRA for as long as possible so that they could achieve the maximum tax-deferred growth possible. This used to be a fairly straightforward concept but, with the increase in second and third marriages, as well as non-traditional marriages, it has become much more complicated.

To add to the confusion, there is increasing pressure from Congress to eliminate the Stretch IRA. This would be a very good time to review your retirement plan beneficiary rules, because you might want to change your designations. Non-spousal beneficiaries may soon be required to withdraw and pay taxes on inherited IRAs within five years. This idea was first introduced by Senate Finance Committee Chair Max Baucus in 2013, and was thankfully withdrawn for lack of support. It reappeared in 2013 as part of President Obama’s budget proposals, and again in 2013 as part of a bill to reduce student loan debt. Killing the Stretch IRA, they felt, would provide enough revenue to reduce student loan rates for college tuition for one year. That bill was passed by the House but died in the Senate by only two votes. Then in 2014 and 2015, President Obama’s budget proposals again included a provision to kill the Stretch IRA. It seems clear to me that this measure, or a similar one, may eventually pass.

So who should be named the beneficiary of your retirement plan? Is one option better than another? Chapter 13 answers these questions assuming that the benefits of the Stretch IRA will continue under the current rules, and also presents some options that you can consider if the Stretch IRA is eventually eliminated. This chapter also offers some guidance in naming trusts as beneficiaries. If done properly, this can protect your assets from your child’s creditors, including their former spouses.

Don’t forget to stop back soon for a sneak peek at Chapter 14, which expands on some concepts critical to understanding the benefits of the Stretch IRA!

Jim

P.S. Here’s a video on The Death of the Stretch:

Jim Lange, Retirement and Estate Planning A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

Jim’s strategies have been endorsed by The Wall Street Journal (33 times), Newsweek, Money Magazine, Smart Money, Reader’s Digest, Bottom Line, and Kiplinger’s. His articles have appeared in Bottom Line, Trusts and Estates Magazine, Financial Planning, The Tax Adviser, Journal of Retirement Planning, and The Pennsylvania Lawyer magazine.

Jim is the best-selling author of Retire Secure! (Wiley, 2006 and 2009), endorsed by Charles Schwab, Larry King, Ed Slott, Jane Bryant Quinn, Roger Ibbotson and The Roth Revolution, Pay Taxes Once and Never Again endorsed by Ed Slott, Natalie Choate and Bob Keebler.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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Is It a Good Idea to Roll Over Your 401K to a Traditional or Roth IRA?

Posted on April 6, 2015 by James Lange in 401(k), IRAs, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Traditional IRA and tagged 401(k), financial advisors, IRA, James Lange, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Retirement Book, roth 401k, Taxes, Western Pennsylvania.

Earlier this year, President Obama announced that he wants to create new rules that give financial advisors a “fiduciary” status under the law. I welcome this wholeheartedly because a fiduciary is required to always put his clients’ interests ahead of his own. This means that a financial advisor cannot make investment recommendations based on the commission they would receive from the investment, and that they must first consider the benefits that would be received by their client. As a fee-based advisor I have always served as a fiduciary to my clients and believe that it is an immensely important role.

I find it sad that we have to pass laws to make sure that the client’s interests are protected, but think that the President is on the right track with this one. More often than not, I hear of financial advisors who are only looking for a commission telling retirees that there’s no reason to not roll their old retirement plans to an IRA. That is simply not true and, in fact, there are circumstances where a retiree will be well served by keeping all or part of his or her retirement money in the original work plan.

These scenariosare discussed in detail in Chapter 6 of the new edition of Retire Secure! If you’ve wondered if rollingyour old 401(k) to an IRA is a good idea, you may very well find that you could save yourself from making a terrible financial decision by weighing all the potential advantages and disadvantages.

Many work plans give employees the opportunity to contribute to both pre-tax and after-tax accounts. If you ultimately decide that rolling your 401(k) to an IRA is the best course of action, you should make sure that you read Chapter 6 to educate yourself about the brand new IRS ruling that applies to your after-tax contributions. This ruling gives retirees an unprecedented opportunity to roll part of your 401(k) to a Roth IRA and, if done properly, the transaction will be completely tax free.

Check back soon for the latest information on Roth conversions!

Thanks for Reading!

Jim

Jim Lange A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train and educate financial advisors.

If you’d like to be reminded as to when the book is coming out please fill out the form below.

Thank you.

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The Optimal Order for Spending Assets: Roth IRA or Traditional IRA First?

Posted on April 2, 2015 by James Lange in IRAs, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Tax Law, Traditional IRA and tagged assets, IRA, ira withdrawal, James Lange, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Roth IRA, Roth IRA Conversion, Tax Law, Traditional IRA, Western Pennsylvania.

Roth IRA, James Lange, Retire Secure A Guide to Getting the Most Out of What You've Got Those of you who have attended my workshops or read the previous editions of my book may remember a rule of thumb I used to use that said, “Spend your after-tax dollars first, tax-deferred dollars second, and then your Roth IRA”. Well, guess what? The changes in the tax laws now mean that there are no more rules of thumb! My new advice is, “Spend your after-tax dollars first, and then withdraw traditional IRA and Roth IRA dollars strategically to optimize tax results.”

Changes in the tax law that affect capital gains and individual tax brackets, as well as new taxes that are aimed specifically at high income taxpayers mean that the advice I used to give in the past is now far too simplistic. Chapter 4 presents detailed information on how capital gains and other taxes should affect your decision to withdraw money from a traditional versus a Roth IRA account. Would you have thought that your marital status could affect your decision too? Is it possible to minimize the tax on your IRA withdrawals? (Hint: oh, yes!) If you have IRA and Roth IRA money left over when you die, is it better to leave one type of account over another to a child at your death?

Chapter 4 covers many new issues that you did not have to worry about in the past, which should certainly affect these decisions. I’d like to give you one word of caution, though. Each of the scenarios presented in this chapter is based on a specific set of variables. In one scenario, I changed only the account from which the taxpayer made the withdrawal, and the outcome is significantly different. Please don’t assume that your personal circumstances will result in the same outcome shown in these scenarios. Ask us to run the numbers for you!

Be sure to stop back for my next post, which will cover some ideas for managing your Required Minimum Distributions!

Thanks,

Jim

If you’d like to be reminded as to when the book is coming out please fill out the form below.

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IRA Withdrawals: Should you withdraw from your Roth or traditional IRA first?

Posted on March 25, 2015 by James Lange in IRAs, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Tax Law, Traditional IRA and tagged Financial Planning, IRA, ira withdrawal, James Lange, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Roth IRA, Tax Law, Taxes, Traditional IRA.

Those of you who have attended my workshops or read the previous editions of my book may remember a rule of thumb I used to use that said, “Spend your after-tax dollars first, use traditional IRA withdrawals second, and then withdraw your Roth”. Well, guess what? The changes in the tax laws now mean that there are no more rules of thumb! My new advice is, “Spend your after-tax dollars first, and then withdraw traditional and Roth IRA dollars strategically to optimize tax results”.

Changes in the tax law that affect capital gains and individual tax brackets, as well as new taxes that are aimed specifically at high income taxpayers mean that the advice I used to give in the past is now far too simplistic. Chapter 4 presents detailed information on how capital gains and other taxes should affect your decision to withdraw money from a traditional versus a Roth account. Would you have thought that your marital status could affect your decision too? Is it possible to minimize the tax on your IRA withdrawals? (Hint: oh, yes.) If you have IRA and Roth money left over when you die, is it better to leave one type of account over another to a child at your death?

Chapter 4 covers many new rules that you did not have to worry about in the past, which should certainly affect these decisions. I’d like to give you one word of caution, though. Each of the scenarios presented in this chapter is based on a specific set of variables. In one scenario, I changed only the account from which the taxpayer made the withdrawal, and the outcome is significantly different. Please don’t assume that your personal circumstances will result in the same outcome shown in these scenarios, but ask us to run the numbers for you!

Be sure to stop back for my next post, which will cover some ideas for managing your Required Minimum Distributions!

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Which Is Better the Traditional or the Roth IRA

Posted on March 11, 2015 by James Lange in Income Tax, IRAs, IRS, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Tax Law, Traditional IRA and tagged IRA, IRS, James Lange, Pittsburgh, Retire Secure! A Guide to Getting the Most out of What You've Got, Retirement, Roth IRA, Tax Law, Traditional IRA, Western Pennsylvania.

Retire Secure! Third Edition, A Guide To Making The Most Out Of What You've Got, James Lange
A theme which appears consistently throughout the third edition of Retire Secure! is the question of which is better – the traditional or Roth IRA. Changes in the law since Edition Two was written, as well as additional changes that our current administration is pressing for, make it the million dollar question.

In order to answer the question, we dedicated Chapter 2 to comparing the pros and cons of each type of account as they exist under the current law. If you are not familiar with the rules of each IRA account, it is probably worth your time to read this chapter. Subsequent chapters address the proposed changes to the rules, and how they might affect your decision when reviewing your retirement plan options. And, due to popular demand, I’ve added a section about the IRS ordering rules, which explains how to avoid tax and penalty if you need to withdraw money from a Roth account before five years has passed.

The IRA illustrations were calculated using a 6% rate of return, and the maximum contribution amount as established by the IRS. We also ran an illustration that shows, for those who don’t have a lot of time left to save, the difference in the accounts when contributions are made for a very limited number of years.

A final note about tax brackets: when Edition Two was written, the maximum tax rate was 35%. Subsequent changes in the tax laws increased the maximum rate to 39.6%. This difference of almost 5% is more significant than you might think. The impact of the increased tax brackets is discussed in detail in subsequent chapters, but the concept is first introduced in Chapter 2.

Check back soon for an update on Chapter 3!

Jim

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More on Retire Secure! Third Edition…Coming Soon!

Posted on January 3, 2015 by James Lange in 401(k), 403(b), Estate Planning, IRAs, Retire Secure!, Retirement Planning, Roth 401(k), Roth IRA, Roth IRA Conversions, Social Security, Tax Law, Traditional IRA and tagged Estate Planning, Financial Planning, James Lange, Retire Secure! Third Edition, Retirement, Retirement Book, Roth IRA, Roth IRA Conversion, Tax Law.

The third edition of Retire Secure!, Retire Secure! A Guide to Making the Most Out of What You’ve Got is set to be released in the coming months, (stay tuned for exact date). This revised Third Edition of Retire Secure! covers how to develop an estate plan that, among other goals, seeks to continue the tax-favored status of your retirement plans or IRAs long after your death using the stretch or inherited IRA—a strategy that has been, and continues to be, threatened by congress. Lange has a history of staying ahead of the curve, seeing trends and changes in the tax laws and developing strategies for his clients in advance to keep them on the right path toward their financial goals. He was among the first to predict the coming changes to the tax law on Roth IRAs and wrote a peer-reviewed article for The Tax Advisor (official journal of the AICPA) that would go on to win article of the year in 1998. He is continuing this trend in this Third Edition by laying out the possibility of the death of the stretch or inherited IRA as we know it, and providing avenues to reach the same or better outcomes for your family including the use of charitable remainder unitrusts, or CRUTS and life insurance.

Lange offers up plenty of new content in this Third Edition including cutting edge analysis on the unique synergy between Roth IRA conversions and Social Security Maximization that his office has been developing. Using Social Security maximization techniques including spousal benefits like “Apply & Suspend,” and timing small appropriate Roth IRA conversions to take advantage of lower tax brackets in retirement can make hundreds of thousands of dollars of difference in your retirement portfolio… and he’s got the study to prove it.

Virtually every chapter of Retire Secure! contains recommendations, analysis, and case studies that have come from a deep understanding of tax law, estate planning, investing, and “running the numbers” and are proven to work.

Read this upcoming book and make the most out of what you’ve got for your retirement and your family’s future security.

A nationally recognized IRA, Roth IRA conversion, and 401(k) expert, he is a regular speaker to both consumers and professional organizations. Jim is the creator of the Lange Cascading Beneficiary Plan™, a benchmark in retirement planning with the flexibility and control it offers the surviving spouse, and the founder of The Roth IRA Institute, created to train ad educate financial advisors.

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