hi its Jill Schlesinger on this episode
of Jill on money we are focusing in on the secure act you know I do lots of
consumer seminars all over the country and whenever I talk about the Roth
people always ask me yeah it sounds good but can I trust the government to keep
its word that it will always be tax free and my answer now is absolutely not
welcome to the Jill on Money podcast we are presented by Marcus by Goldman Sachs
just before the end of the year Congress passed and the President signed a
sweeping new reform to retirement rules it’s called the secure act and a lot of
you folks who went through your holidays blithely ignoring it good for you
are now asking question so we have an expert here we have our old pal Eadie
slot he is a retirement plan expert he’s a CPA we have him for two segments so
thank goodness this first show is going to focus on the secure act and then in a
subsequent episode we’ll talk about your tax planning so here’s our interview
with IDI slot you’re listening to Jill on money with Jill Schlesinger and you
know we start the show with a very simple question yeah what is your best
career or financial decision you’ve ever made the best investment if I have to
say is it my own business if you know what you’re doing you know the stock
market’s all good but it’s other people controlling things you started as a CPA
right I still I’m a CPA but I always invested in things I knew about myself
and my business and that always paid paid off the best now I don’t know if
everybody can do that but whatever job whatever talents or
unique ability you have that’s probably your best investment to get more out of
that did you go into business yourself straight out or did you do Paula I
worked for a came a toccata like everybody came out of college begged for
work in 1976 last year was my 43rd taxies and I’m pretty much out of that I
don’t do that many returns anymore I have a unique practice now just family
that which may be actually not very good Mayan snow
the other worse especially my young nephews and nieces that move for a you
know state to state they’re everywhere they’re the hardest returns ever all
right so in the middle of last year we had some notion about what this secured
act was going to do so let me start by asking you after understanding what you
thought it was going to do were you surprised by any parts of the secured
act that were notable like sort of last minute yeah there were a couple of
things in there but probably too esoteric like for one of the things they
did they eliminated the age for being able there was an age restriction on
being able to contribute to a traditional IRA not a Roth you could
always contribute to a Roth at any age which was good but yet for traditional
IRAs you could not contribute for the year you turn 70 and a half or older so
they got rid of that what was the premise of not allowing you to do it no
it’s just the way they were parallel systems and they never sort of met
anywhere okay so the Roth rules were always kind of opposite I raised Roth’s
came in later so I arrays were behind the 8-ball or something and finally
somebody realized why aren’t they the same just like us right and so they
eliminated the age restriction so people who are working after 70 and a half can
still contribute to a traditional IRA but that being said why bother I mean
you know really at that point if you’re still working after 70 and a half do a
Roth IRA at this point who needs a tax deduction not only that they put a
little quirk in there which I don’t know how it got into the law and I hope
nobody even hears this anymore but if you do a deductible IRA after 70 and a
half and you also want to give to charity through this qualified
charitable distribution provision which is one of the best provisions in the tax
code we call it a QCD well you can contribute directly from your IRA to the
charity if you do both somehow Congress didn’t like that and they put in this
complicated formula where you won’t get the benefit of the QCD
and it can actually turn it into something taxable
without going into the weeds on this because it’s bizarre I don’t know who
put it into the tactile like of all the billions that were given away in this
last-minute tax deal the one thing Congress was most worried about is
people doing a deductible IRA and giving too much to charity that’s where they
were worried about the budget deficit hitting over a trillion dollars anyway
don’t do that if you’re over 70 and a half the good thing is you can still
contribute to a traditional IRA or a Roth you’re better off doing a Roth the
only problem is some people if they make a lot of money can’t do a Roth because
there’s income limitations so if that’s you you can do what we call the backdoor
Roth where now you can contribute something Congress probably didn’t
intend contribute to a traditional IRA and convert to a Roth even if you’re
over 70 and a half but the good thing that it opens up if one spouse if you
have a married couple and even one of them is working still at age 75 which is
not unheard of anymore you know after 70 and a half then both spouses can put
money in an IRA and double your contributions that’s one part of like a
weird part of the secure.i yeah one thing that became interesting also was
that the required minimum distribution age is increasing from 70 and a half
which was always whacky to be a half to 72 I presume that you think that’s just
fine right the whole Act is other than some big parts is trimming around the
edges the things that they say help people for example we just talked about
the 70 and a half I don’t know how many people over 70 a half are gonna start
putting money and IRAs but they should be going the other way remember on that
other provision if you’re putting money in it also has to come out at age 72 now
so they have 70 half 72 but raising the RMD age to 72 and getting rid of the 70
and a half I think it’s the single best provision you don’t know how many people
over the years and this was in place for decades got confused about the half year
they didn’t know I was I 70 was i-71 what age do I look at when do I start
when is my date people would call about what am i 70 and a half so all of that’s
out the half year convention is gone good riddance that’s the best part
of it but it really wasn’t a big change so they raised the date you can delay
RMDs your required minimum distributions from seventy and a half all the way up
to 72 so yeah if you have the money you can wait another year and a half but the
Treasury’s own numbers say that doesn’t affect 80% of the people because 80% of
the people take more than their RMD because they need the money only 20%
don’t need the money so for that 20% they can delay it a year and a half all
right let’s talk about some other provisions you know I’m leaving stretch
to the very okay yeah we’re not doing that immediately because I don’t want
you get worked up yeah a couple of things that I let me give you my thing
that’ll get me nuts the annuity all right inside of the 401k okay now but
everyone edy just raises eyebrows and made one of these kind of faces that was
like oh boy this is not going to be a good thing well it is a good thing but
it’s also something to worry about what they were trying to do is bring
back something called pensions you may have heard of these yes checks people
got years and years absolutely nothing and companies hated the idea of paying X
employees for not working yes so they switched over back in the late 70s early
80s to something called 401ks and Pensions for most people went by the
wayside well now people are worried about having their all their 401ks
tied to the market what if they get out and there’s a crash like happen so what
they did in the tax law they said you know more companies should be offering
some kind of guaranteed income like a pension which is what an annuity does
guaranteed income for life now 401ks could always offer these things but they
didn’t generally in the past because the employers the companies didn’t want to
be on the hook like saying you know get this annuity and then they’d get sued
because they didn’t know what they were talking about that they’re in the
widgetts business and that needed new right before the insurance company went
broke right and now what happens so what they did in the law said we still want
people to be able to get these lifetime income
options which i think is a good thing people should have some guaranteed
income for at least their basic living expenses that’s where annuities can come
in so now they lifted all the obligations of the employer say don’t
worry you you don’t have to worry you could offer anything you want you won’t
get blamed if they have a problem they can go to the insurance company so
here’s the problem a lot of things are going to be sold to employees in plans
and the boss is going to say yeah that’s what the guy showed me I guess it’s okay
maybe it’s not maybe it is but you won’t know so what you should do the idea is
good I’m a big believer in having some kind of guaranteed income in retirement
and that’s where annuities come in at least for your basic living expenses but
if it’s offered in your plan in other words you’re going to take a chunk of
your 401k and turn it into a lifetime income a stream of income a pension like
they used to have in the past but you should have your own financial advisor
or your own advocate not your employer who knows absolutely nothing about this
it’s not a representative from the insurance money you’re gonna have to
have somebody on your side somebody looking out for you you’re on your own
otherwise you should not just accept and that’s where I feel is going to happen
people will be offered things at work they don’t look for their Oh some of
them don’t even have their own advisors like who are you going to ask about you
on money or EDD slot and I think that’s the only problem with it and I think
that’s a big one okay because annuities are opaque they’re expensive so what we
know and I’m sure you’ve encountered this is that you meet let’s say your
average teacher right who’s got a 403 B and they’ve got the crappiest annuity
contract inside of that 403 B and you scratch your head and say how did you
get that well they weren’t advised properly but again the idea of an
annuity is not a bad idea for guaranteed income you can get tiaa-cref that would
be wonderful like some low-cost annuity there are a lot of new they there are
new annuities out there now but you have to have somebody takes you through all
the bells and whistles one aspect of the secured act that I thought was good was
this idea of translating a total count value into a monthly or an annual
amount in the future because I do think that sometimes people will look at a
portfolio and they’re you know it’s my 401k and they say well there’s a hammer
yeah right right got a half a million dollars in there and you or I look at
that and be like good luck with that yeah that’s 400 a month right good luck
good luck so I think that is a good thing okay you know I think there’s
probably good news for small businesses who can make can band together to all I
don’t know you know are they gonna do it no it sounds good but think about if
you’re in a small business you’re gonna get together and maybe it’ll catch on
maybe not get together with other employers you don’t know at different
businesses and you’re gonna have this big 401k you know most small businesses
don’t do these plans because they can’t afford the paperwork they’re afraid of
getting sued all the time that afraid of the employees losing money they have to
run a business if they have ten or fifteen or three employees they don’t
want to get started with this yes they could band together and there’s
incentives to do it how many will I guess it remains to be seen but it
sounds better than it might play out in in reality how about the ability for
part-timers expanded so they reduce the number of hours from a thousand to 500
but again I hate to be like Debbie Downer everything but these are the kind
of people that lived paycheck to paycheck and many of them can’t afford
to put money away they’re going freelance job to job the big issues they
didn’t really hit that’s why I said the whole act was really trimming around the
edges the centerpiece was more availability of the annuities because at
least they recognized people need guaranteed monthly income for the rest
of their lives you see that’s the optimistic take yeah I might you don’t
want to know the pessimistic because the insurance Lobby killed them
okay come on I’ll say it out loud this is chill line money hey gang it’s
me Jill Schlesinger you know that you listen to the pod certified financial
planner CBS News business analysts host of this here podcast Jill on money and I
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forward slash clarity and now back to our interview with Edie slot what about
the idea that you can take money out of your plan for adoption or new baby or to
pay off all right or get money out of your 529 yeah okay 529 I don’t really
care about rich people use that so that’s fine I mean I get it and I love it
and good for marks and I’m glad that we have a nice account for Theo building up
but the reality is I don’t love the idea that people can get money out of their
retirement I said that the minute that provision was put in there and I have to
be so careful how I say it I’m not against birth and adoption you
know children that’s like Christmas and hot dogs you can’t be against these
things but the idea of a retirement account is for retirement this business
that you can raise your retirement savings for five thousand every time you
a birth or an adoption means you’ll have nothing later when you need it most but
there’s a big trap in there and I’ve seen this happen with similar provisions
like this over the years what happens is people are not well-educated on this so
the people that might use it think they can take 5,000 out if they need money
out of their 401k or IRA if they have a baby or they adopt a baby and that’s the
end of it all this does it eliminates the 10% penalty for taking it out early
it does not eliminate the tax you still owe the tax so here’s what I see
happening somebody takes 5,000 out and they spend it because they need it right
next year tax time comes around the old $1,500 what are we gonna do now well I
guess hit the retirement account again and all sudden you’re in this cycle
where you just go through your retirement savings that’s what it’s for
retirement it shouldn’t only be a last resort so you can really get yourself in
trouble all of these exceptions to getting to your money to retirement
before retirement sound good until you hit retirement you have no money left
this is what Boston College Center for retirement research called leakage wise
they said here’s the problem we’re letting these people get to their money
too quickly I even asked a friend of mine who’s a teacher in New York State
and I said what if somebody really needs the money from their pensions what do
you mean there’s no loan against your parents right right that’s it man it’s
locked down you get it for retirement so I think that the problem is that these
have become too leaky there’s too many there were loans the withdrawals and all
the difference in the house like this is nuts we’re really making it harder for
people to retire securely all right you ready to do the stretch oh boy yeah okay
now first of all let’s go back in history a hundred years ago when I first
became a financial planner it was always the rule that if a spouse inherited a
retirement account you got to basically take that over and it became your own
retirement right okay non spouse inherited a retirement account 30 years
ago you used to have to get the money out within five years
well there were a whole myriad of rules but basically over the last 20 years or
so they changed that actually iris changed it in regulations said a
non spouse could stretch or extend distributions over their lifetime but
that wasn’t always the case in other words years ago do we have a five-year
window in the money Ivey there was all kinds of I don’t even want to go back
there because you don’t have to know them but I just want people to frame it
that it used to be a system where the IRS said yeah non spouse you get the
money within five years you got to get the money out Uncle Sam gets paid there
was always some version of a life expectancy but it’s hard to get until
IRS created the regs back in 2001 over 20 years ago and everybody who is a
named beneficiary even a grandchild could stretch or extend distributions
over his or her like 7080 years okay so now under the new secure act the
rule is you are a non spouse you inherit this retirement account you can no
longer stretch it over your lifetime you now have to take that money out over ten
years right okay now this is causing people to have apoplexy I mean like the
fetching that is going on is beyond now I need you to just like back up before
you dive in most people who inherit IRAs need the money anyway
right they’re gonna spend the money is it true this is a bad way to ask a
question if I were a listener true okay is it true that we are actually talking
about a fraction of the population that can basically say I don’t need the money
I might as well stretch it out so it really is a benefit the richer you are
right right okay now with that said now you can tell me why there’s two sides to
the story Congress is saying the few congressmen
that even know this was in the act that maybe one they’re gonna know now yeah
congressmen say well it’s for retirement it’s not for estate planning to leave
over the beneficiaries but I know people that have been planning this way and
arranged their life around the tax laws for 20-30 years and said well this is
why I didn’t live lavishly I always felt it would be more like The Millionaire
Next Door type yeah it is remember these are not wealthy Wall Street type people
or whatever the only way you could ever get money in
an IRA or the 401k was by working for it that’s the only way money could get into
a retirement account so these people work for twenty thirty years saved
frugally invested with discipline they said you know what we don’t need all
this we want to name our child a grandchild and our plan playing by the
rules all along was that when we died they could have a legacy that we could
leave to them a matter of fact I remember years ago at all the clients
she was in her nineties she loved the idea the stretch IRA because she would
let it to a grandchildren and she said I don’t know if you’re aware like other
rules when you set up an inherited IRA it always it has to have the deceased
name in the title and she loved the idea that they would always have an account
with her name in the title so so they would always remember it came from her
all these people got the rug pulled out from them in the ninth inning of the
game and they felt you know this is unfair they’re changing the rules right
at the end of the game whereas your kids could always have taken it out early
they could have always taken it out that’s true now they’re forced to a lot
of kids would have taken it out earlier anyway matter of fact some kids take it
out right right away and now they say oh I have 10 years maybe so ok now the
downside of this rule is that it is an instance where the IRS did something a
little bit weird and the government is doing something weird which is hidden
grandfather people in and so this is a realtor and father people in anybody who
died in nineteen or earlier if you inherited on December 31st 19 and you
were 2 years old you could still go out you’re a year but you can’t do it to the
next generation ok but what I think you’re saying is it’s not so much that
the rule that the rules so blatantly unfair it’s just that the change really
disrupted planning and so if they could do that they could do things like you
know what maybe Roth IRAs will tax the accumulate it right on the head you know
I do lots of consumer seminars all over the country and whenever I talk about
the Roth people always ask me yeah it sounds good but can I trust the
government to keep its word that it will always be tax free
and now is absolutely not when they need money when they started like you know
going on to the couch cushions looking for spare change for there’s a trillion
dollar deficit that they created everything’s at risk your your
retirement accounts are now under siege they will always be looking for ways to
separate you from your retirement savings because it’s a trap now you’re a
sitting duck they told you all along put money in your IRAs your 401 K cut it in
put it in put it now it’s in there now we got you so do you still think that
the Roth IRA is something worth doing yeah because it removes the uncertainty
of what future higher taxes can do to your standard of living plus with this
secure act with the 10-year rule it’s still a better asset to inherit because
if you’re leaving a big IRA to your beneficiaries who have to get it out and
pay tax in ten years that could accelerate the taxation and the
beneficiaries might be in their peak earnings years and rates could go higher
if you convert now to a Roth using today’s much lower rates they still have
to take it out at the end of ten years but it can stay there for ten years
growing tax-free and when they have to pull it out it be all tax-free because
you pay unless they change the rules unless they change the rules but that
they would grandfather just like they grandfathered these so I would say get
the Roth while it’s here before the government starts reaching into your
pocket again okay in some secure act letter grade the ED
slot it’s an F or an A what is the grade the total grade for the whole secure Act
probably a d Wow well because it didn’t do much and created more complexity I
don’t really see any benefits other than the big annuity benefit which has it so
every benefit has its drawbacks that’s the problem the annuity thing is great
but you got to get your own advice I believe that’s a big part and I do
believe in people having guaranteed income because you cannot rely on the
stock market for everything for your retirement savings look what happened in
2008-9 those people could not recover who are retired then so you do need some
guaranteed income so that’s a good thing but the others were trimming
around the edges there was no debate obviously you know they pushed it
through at the last minute most people weren’t even were amazed like me that
they’ve got thrown in at the last minute by the lobbyists as you said the best
thing is getting rid of that half year for 70 and a half but the other things
created problems there are some good maybe maybe a C or a D all right so
we’ll give it D plus even go up to C now I think about the Edit for the half year
70 I think there’s improvements they could make to it a gentleman’s C secure
act ok ad in the beginning of our conversation I asked you your best
career or money decision so let me ask you now what’s your worst Oh these I
don’t know what they call them but back in the eighties these limited
partnerships all of these they would come in with the fancy brochure and
here’s my rule that the more pages the glossy brochure has about how you’re
gonna make all these money than these master limited partnerships or whatever
they call them stay away from that stuff it only looks good in the brochure your
money’s tied up forever and back in the 80s I learned my lesson because people
were doing this for these 10 to 1 right off then they shut all that down with
the 86 Tax Act so people and I had clients sophisticated smart good smart
people that got their minds turned to mush by salesmen that said but look at
the taxes you’ll save and I would say to them but you’re gonna lose your money
and I did that myself I got caught up in it in the mid 80s I would never do it
again you know yes you did get tax benefits but your reason you got the tax
payers because you lost your money yes so you you got to claim a fraction but
you lost the dollar right okay it’s a lot thank you so much okay
thanks so much had slot he’ll be back for a little tax planning episode as
well we drop new episodes of Jill on money every Tuesday and Thursday and
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show is presented by Marcus by Goldman Sachs see you next week you

Author Since: Mar 11, 2019

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