Setting Up Every Community for Retirement Enhancement, or the Secure Act, offers tax advantages for small business owners and many part-time and older workers, as reported here.
But the new law, which took effect on January 1, 2020, has a dark side, too. Most investors of Roth Individual Retirement Accounts (IRAs) remain unaware of all the tax-free benefits of a Roth. Non-spouse beneficiaries of traditional IRAs also stand to lose: They will no longer allowed to “stretch” out distributions over their lifetime, but required to withdraw all money within 10 years.
Secure’s unexpected impact creates a “perfect storm” for business reporte4rs to clear up the confusion about Roths by developing one or more of the following stories:
Exactly what’s in a Roth IRA?
Several valuable benefits that most investors don’t understand—and aren’t maximizing—say financial experts. As one example, less than a quarter (22%) of investors know they can contribute to a Roth after the age of 70½, based on August 2019 survey results from TD Ameritrade. About 26 million U.S. households hold Roth IRAs, according to the Investment Company Institute, compared with 36 million households who invest in traditional IRAs, according to the Plan Sponsor Council of America (PSCA).
Do some research on the buzz that’s building among financial advisors about the half dozen or more benefits that investors are overlooking. Then work with your staff’s graphic artist to create an online quiz instead of presenting the information in print. Invite readers to participate in an interview to discuss the results.
What can investors with a “stretch” IRA do?
Convert it into a Roth, say financial planners. That strategy could significantly reduce future taxes, say financial planners, especially if an investor has IRA assets worth $1 million or more that they’d like to pass on to someone other than their spouse. Doing that also allows after-tax money to grow. Invite several readers who hold, or will inherit, a stretch IRA to join a discussion on the steps to take with a financial planner and Certified Public Accountant.
Aren’t Roth IRAs only for the wealthy?
No. Middle-class workers have been realizing their tax benefits for a while. These tax-free IRAs have doubled since 2007, according to the PSCA. But investors can do more, by saving in a Roth IRA and also contributing to a traditional or Roth 401(k) at the same time; they don’t have to wait to reach their 401(k) maximum before contributing to a Roth. Roth IRAs can also help reduce your Medicare Part B and Part D costs, the PSCA points out, by lowering your taxable income. In 2020, the Roth IRA limit is $19,500, or $26,000 for individuals 50 and older, and earning up to $122,000.