Table of Contents
I met a vibrant old man walking along the beach in Santa Barbara. We struck up a conversation. He told me that when he graduated from college, all his friends moved to where they found the best job. But he didn’t jump on that train. He thought about where he wanted to spend his life. He projected that if he took a job somewhere he didn’t really want to be, the chances were he would meet a woman, get married, and his future wife might not want to move away from his family. Bottom line, if he moved to a city because it offered the best short-term job opportunity, he might get stuck there.
Instead, he held out for a job near Santa Barbara, where he wanted to spend his life. He got the job, he got married, and he got the life he wanted. He has lived in California for more than 60 years.
Well, we can’t go back in time and revisit all our decisions. But we can plan for the future. I think there is a good lesson to be learned from this man’s “life designing.” How do we want to spend our time? Where do we want to spend the rest of our lives—or even a few months in the winter?
I have practically pleaded with some clients to rent a place in Florida for a month or two in the winter. Once I even went on VRBO.com (vacation rental by owner) to show them how it worked and what they could rent. The couple said it sounded great and it would be good for his health. But they cried they couldn’t afford it. Nonsense! They absolutely could have. So can you. You might have another reason you don’t want to do something like that, but if you are reading this newsletter, you almost certainly can afford a VRBO for a month or two somewhere warm. The end of the story: The husband died. We don’t like thinking about it, but we must face the facts: we aren’t getting younger as time goes on.
I am trying to learn a lesson too. I am enjoying the working snowbird life. With the pandemic limiting face-to-face meetings, I have become a frequent “Zoomer.” I can work from anywhere. This past year and tentatively in the future, I plan to spend winters in Tucson and summers in Pittsburgh.
I’m concluding my winter cycling or in my case e-biking in the desert. I cycle about every day. Sometimes on the 110 miles of paved bicycle trails, sometimes up a gorgeous mountain called Mt Lemmon, and recently on a beautiful 8-mile one-way loop in Saguaro National Park East (close to where I am staying). The sunrises and sunsets here are spectacular.
My snowbird life allows me to spend more time where I want to spend much of my time—outdoors. I have designed my life so I can comfortably spend a lot of time outdoors doing what I really love which is e-biking and hiking. My wife also loves hiking, and we go for a hike here in Tucson more days than we don’t.
But I can still work here effectively with Zoom. In fact, business is better than ever, and I have a lot of good things in process. Are there some issues with not being physically present with my business and even my house? Of course. At least for me, the benefits of being a working snowbird outweigh the disadvantages by a country mile.
I start some days with a workout (three days a week with my Pittsburgh trainer on Zoom) and then spend the morning working. I then e-bike, and later meet my wife, Cindy, for a hike in the desert. I frequently work into the evening—an old habit.
An e-bike ride up Mt. Lemmon is an all-day affair. It is about a 6,000+ foot climb and is considered one of the 10 most beautiful cycling roads in the country. It is about 25 degrees colder near the top and is a great place to escape the April heat in the valley. I usually stop at most of the scenic view areas on the way up. I sometimes stop at trailheads and go on a short walk and then get back on the bike and ride to the summit. I take a private shuttle down because I don’t want to be constantly braking or cycling kamikaze-like downhill—my devil-may-care days are done! Cindy also prefers I take a shuttle. Biking up and shuttling down makes for a much more relaxed and frankly much safer day. I did that four days last week when Cindy was visiting our daughter, Erica, who is with her boyfriend near Boston.
When I return to Pittsburgh, I’ve decided I won’t be making any Monday or Tuesday appointments. That way I can plan mini excursions for hiking and biking.
Word-to-the-wise, you are much more likely to follow through on a plan if you pick some places and make reservations in advance. Take that under advisement. It can be like herding cats to get some of my friends to commit so sometimes it’s just Cindy and me and sometimes, just me.
During a recent client review, a proud new grandmother was sharing news of her new granddaughter. She was beaming, rightfully so. She and her husband are about to retire and frankly, they don’t have a “design.” I threw out the idea of renting a place near their new granddaughter (I like to start by renting first) and spending winters in a warm place near family. They are outdoorsy too so there will be a double benefit to spending winters in a warm place. It was an idea that they hadn’t considered. As I mentioned, splitting time between places has its own challenges. But seriously, assessing where and how you want to spend your time and thinking about what might energize you is a worthwhile endeavor.
Is there some type of “life design” change you could make?
Would You Like to Join Our Book Launch Team?
We Would Love to Have You as a Member.
I am inviting you to be part of something special. I am about to publish a series of updated and expanded editions of my flagship book, Retire Secure! The updated versions are by far the best and most comprehensive editions we have ever written. Each book in the series will offer some specific recommendations for a particular audience but still be relevant for a general audience. Not only will they help IRA and retirement plan owners dramatically reduce their taxes and increase their wealth, but particular recommendations will be enormously beneficial for cutting taxes on charitable gifts and bequests.
I would like you to help me and my team launch this series of books to a level of prominence in the IRA and retirement planning community that I know would not be possible without your help. These books will have the power to influence the future wealth and happiness of tens of thousands, potentially millions of hard-working retirement plan and IRA owners.
The book helps IRA and retirement plan owners get the most out of what they’ve got during the accumulation stage, the distribution stage, and the estate planning stage—fundamentally from the start of a career to the end of life. I have included critical chapters that were not in previous editions of Retire Secure! For example, I have two new chapters regarding the best way for IRA and retirement plan owners to give to charity, both while you are alive and through your estate.
I cover opportunities that few families take advantage of. For example, how to provide for children who have varying degrees of financial strength and who are likely to be in different tax brackets. There are several tax-advantaged and equitable strategies to provide for children under these circumstances. I also have a new chapter with financial recommendations for IRA owners who are parents of a child or children with disabilities or chronic illnesses. Plus, I have a new chapter with recommendations for unmarried couples.
The first book will be for professors titled Retire Secure for Professors. Subsequent books will be for doctors, TIAA participants, and the general IRA and retirement plan community. There will be several specialty chapters in the version for professors, but the rest of the content will be equally applicable for all IRA and retirement plan owners with significant accumulations in their plans.
If you would like to join our launch team, we will send you the manuscript to review and ask for your recommendations to improve the book. We would so appreciate your suggestions. Later in the process, we will ask you to help us in other ways like mentioning the book to a friend or posting a review. Hopefully, we will also be able to answer any questions you might have.
If you are interested, please sign up at https://PayTaxesLater.com/ProfessorBookLaunch. You will become a member of the core launch team and I will email you a .pdf and mail you a printed copy of the book.
I will form the launch team within a week of you receiving this newsletter. I look forward on connecting with you inside the launch portal.
Proposed Regulations to SECURE Act
Make Roth IRA Conversions Even More Valuable
by Matt Schwartz, Esq.
Lange Legal Group, LLC
On February 23, 2022, the IRS nonchalantly released 275 pages of Proposed Regulations which shocked the retirement and estate planning professional community. Since the passage of the SECURE Act at the end of 2019, many planners have been reeling over the ten-year payout requirement for inherited retirement accounts created by the Act, subject to limited exceptions.
Families and their retirement and estate planners have been scrambling to minimize the greatly accelerated income tax burden caused by the ten-year payout rule and have been recommending in many cases (particularly with Roth IRAs) to wait until the end of the payout period to withdraw the funds from the inherited retirement account.
The most devastating announcement under the Proposed Regulations was for beneficiaries of retirement accounts who inherited from retirement account owners already receiving Required Minimum Distributions (RMDs)—those who reached their required beginning date for distributions prior to their death, i.e., the April 1st of the year after they reached age 72 or retirement, whichever is later. This group represents most retirement account owners, and these beneficiaries will likely be required to take annual distributions in the first nine years immediately following the year of the IRA owner’s death, and then be forced to take a lump-sum distribution for the balance of the retirement account in the final distribution year. These proposed distribution rules will apply to traditional retirement accounts but not to Roth retirement accounts because Roth retirement accounts never have a required beginning date for distributions.
If the Proposed Regulations are passed in their current form with respect to RMDs from IRA owners who reached their required beginning date before their death, our general recommendations to inherited retirement account owner beneficiaries are as follows:
- Traditional Retirement Accounts: Consider your likely income tax bracket for the next ten years and then decide whether it is more advantageous to take roughly one-tenth the first year, one-ninth the second year, and so on or take advantage of the limited income tax deferral still available by taking the minimum amount out years 1-9 and take out the balance in year ten. This strategy will most likely make sense on more modest retirement accounts ($500,000 or less) and averaging the income or strategically withdrawing the IRA in some other manner will likely make sense for larger IRAs. Each case should be evaluated based on running the numbers, and our group is well-positioned to help you with that analysis.
- Roth Retirement Accounts – The advice for Roth retirement accounts is more straightforward. We recommend that Roth IRA beneficiaries wait until year ten and then take out the balance in year ten.
Please note that the Proposed Regulations make life even more miserable than before when inheriting a traditional IRA while there are basically no further changes for beneficiaries of inherited Roth IRAs. That is another reason the Roth IRA conversion will be good for large IRA owners.
The Proposed Regulations provide important guidance for when a minor child is no longer considered a minor (age 21). They also clarify when a beneficiary is considered disabled (defer to the Social Security definition for beneficiaries ages 18 or older). This is a very big deal for IRA and retirement plan owners with beneficiaries with a disability. More on this in subsequent columns (if an individual has a medically determinable physical or mental impairment that results in marked and severe functional limitations and that can be expected to result in death or to be of long-continued and indefinite duration).
There are also now common-sense guidelines if the beneficiary is less than 21.
The Proposed Regulations provide important clarifications for planners regarding what language can and cannot be in a trust to qualify for stretch exceptions and/or the ten-year rule.
Proposed Changes to Required Minimum Distributions (RMDs)
The 2019 Secure Act changed when RMDs from retirement accounts must begin to age 72, from 70½. Under the House-passed version of SECURE Act 2.0, those mandated annual withdrawals wouldn’t have to start until age 73 in 2023, and age 74 in 2030, and age 75 in 2033. The delay in the start of RMDs provides a longer window after retirement for retirement account owners to make Roth IRA conversions.
The Senate proposal of SECURE Act 2.0 which has not yet been approved by the full Senate would raise the RMD age to 75 by 2030. It also would waive RMDs for individuals with less than $100,000 in aggregate retirement savings, as well as reduce the penalty for failing to take RMDs to 25% from the current 50%.
Both the House version and the Senate version contemplate increased catch-up contributions of $10,000 per year for retirement account owners. The Senate version permits these increased contributions at age 60, and the House version allows increased contributions at age 62, 63, and 64.
We will alert you to the approved Final Regulations which we anticipate being published later this year. However, we felt that it was crucial that you were aware of this pending additional change regarding inherited retirement accounts.