FinPlan Friday: The Savers Credit & The SECURE ACT

The Saver's Credit

The Saver's Credit has become more important following the passage of the SECURE Act, because now you are able to continue to contribute to a traditional IRA even after age 70 ½. Learn more about the Saver's Credit this week in our FinPlan Friday discussion with Joe.

FinPlan Fridays

In our video blog series, FinPlan Fridays, Covisum^® Founder and President, Joe Elsasser, CFP^®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective into the challenges for which Covisum provides technology solutions. Join us on the first Friday of every month for FinPlan Fridays, and get helpful tips to grow your financial planning practice. 

Transcript

Hi, I'm Joe Elsasser, President of Covisum^®, and welcome to another FinPlan Friday. Today, we're going to talk a little bit about the Saver's Credit. The Saver's Credit became more important with the passage of the SECURE Act at the end of 2019, because now you are able to continue to contribute to a traditional IRA even after age 70 ½.

That's going to be particularly relevant for clients who retire, but still pursue a little bit of part time work ($5,000, $10,000, $15,000/year) just because they enjoy it. And for that particular client, this opportunity to get a tax credit of either 10%, 20 %, or even 50% up to $1,000 is not insignificant. It's actually a pretty significant benefit. So, the key, in order to realize the Saver's Credit, is to make sure that you're keeping down the other forms of the client's adjusted gross income. And probably the most common way of doing that is by harvesting principal, using a non-qualified account and harvesting principal in order to meet the client's additional income need over and above what they're earning from that part-time income. So after the SECURE Act, the ability to continue to contribute means that contribution can go to a traditional IRA.

This has always really been available to someone who is using a Roth IRA, and I think a lot of advisors just don't pay attention to it because most of our clients are well over the thresholds that would trigger the Saver's Credit. Yet for many clients, there's a one or two or maybe even a three year period where keeping the income that's recognized on the return low can be a pretty significant benefit. 

How Can Covisum Help You Navigate the SECURE Act in Your Practice?

Significant changes in legislation can present enormous opportunities for the advisors who know how to capitalize. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) offers significant changes for retirees. The age for required minimum distributions has been changed from 70½ to  age 72 . IRA contributions are no longer capped by age. The stretch IRA has now been limited to 10 years. Advisors  who serve mass affluent clients in retirement transition and beyond and use Tax Clarity^® can help clients visualize these changes and all the possible scenarios.