The recently passed SECURE Act includes some significant changes to retirement income planning and presents a significant opportunity for advisors.  Learn more about the SECURE Act 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. 


Hi, I'm Joe Elsasser, President and Founder of Covisum®, and for today’s FinPlan Friday, we are going to talk a little bit about the Secure Act. For those of us who are in retirement income planning, particularly for the massive affluent and lower affluent, this is a pretty big deal. There are three major changes to our business.

The first is the change to required minimum distributions. And that is that they will begin at age 72 rather than age 70 1/2. So, a lot of the complication around age 70 ½ are going to be out the window. What does that mean for us? Well, first, it will be simpler to explain. But second, it opens up the potential for an additional couple of years of Roth conversions in order to bring down those eventual required minimum distributions. Of course, that's always been a big focus in Income InSight® with the alternate harvesting patterns that you're able to choose from, but I think the importance is going to be greater and the willingness of the community to listen to those sorts of techniques is always greater in times of change.

The second major change is the ability for anyone who is currently employed to contribute to an IRA. It's no longer capped by age. So, you could be 74 years old and if you have earned income on your return, you'll be eligible to contribute to a traditional IRA. Of course, traditional IRAs were the only retirement savings vehicle that had that limitation in the past. So, this was really a no-brainer change. There will be a couple of opportunities for advisors. Particularly for those situations where you have clients who are working part-time and probably doing it because they enjoy it and yet they may be in a situation where now they don't have required minimum distributions until age 72. They've got a little bit of earned income coming in, but maybe they're living mostly off of non-qualified investments. Now, if that's the case, oftentimes you might have the ability to make an IRA contribution and qualify for a savers credit because those folks can often look poor on paper, which may qualify them for that $1,000 tax credit. That's a change that's going to impact some portion of your clients.

The third change is probably the most significant for retirement income planners in this big picture, and that is the change to stretch IRAs. The stretch IRA has now been limited to 10 years. If I inherited an IRA and the death of the original account owner occurred any time after 2020, that money is going to have to come out within 10 years. Now, I can do it all in any one year along that 10-year track, but in 10 years, it all has to be gone. Sometimes you may want to lump it into a few years. Other times you may want to stretch it out over a 10-year period. There will be a variety of planning techniques that are going to surround that 10-year distribution period for IRAs.

The other change there that's important is the impact of Roth IRAs. While Roth IRAs have always been an incredible legacy vehicle, the fact that the stretch IRA is capped on the traditional IRA side will make Roth's more attractive. If a Roth is inherited, it's not going to bump a higher income beneficiary into a an even higher tax bracket, but because the distribution period for the Roth is also limited to 10 years, I think for a lot of mass affluent and lower affluent individuals, we're going to find life insurance to actually be much more attractive relative to a Roth than it has been in the past. We really want to look to the fact pattern of the client. If the client is a conservative to moderate investor who was really unlikely to be aggressively invested in the Roth anyway, that means that they may also have other insurance needs, particularly the need for long-term care. So, when you have a situation where the Roth is not likely to dramatically outperform from an investment perspective and you have insurance needs that are well met by life insurance or long-term care riders on life insurance, I think you're going to find that life insurance actually stacks up a lot better post SECURE Act against a Roth IRA than it has in the past. We're going to see that evolve quite a bit as more and more software companies like ours update software to make that a really fair comparison and really understand the situations where a Roth is definitely better and vise versa where life insurance is definitely better.

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. Income InSight can help you identify and project how expenses, income streams, accounts, investments, and insurance could be used throughout a client’s lifetime to supply the after-tax retirement lifestyle they desire.  

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