Congress recently approved the SECURE Act. This new law will affect nearly every individual in or nearing retirement. In this episode, we break down major parts of the SECURE Act that will change your retirement plan.
The SECURE Act Section-By-Section:
Webinar (Instant Replay):
Quick Guide (PDF Download):
Speaker 1: 00:05 Welcome to the Financial Jargon podcast. Far too many advisors speak over their client's heads, by using intelligent sounding jargon that doesn't truly help. It's time for real conversations that lead to real change. We're here to simplify the financial world and help you become a smarter investor. This series is brought to you by Oakmont, an investment and financial planning firm who's on a mission to change how financial advice is provided through purposeful investing and honest guidance. They're breaking down the wall between financial advisors and investors. They use cutting edge planning tools, low cost managed portfolios, and a fiduciary touch. Tell people, become smarter investors. For more information about Oakmont, please visit Oakmontadvisory.com now, let's get into the show.
David Hicks: 00:55 Hey everyone. Welcome to Financial Jargon. I'm your host, David Hicks, and I'm here as always with my trustee compadre, amigo, D. Ryan Gilmore. Hey for more information, I want to remind you to visit our show notes at financialjargon.com. There's a treasure trove of resources, so anything that we discuss in today's show, including transcription, any links, any PDFs, any resources, it's all there in the show notes. So I want to encourage you to go there when you get a chance. Financial Jargon.com. Hey, on this week's jargon, the SECURE Act. S.
D. Ryan Gilmore: 01:33 So the SECURE Act, right? This piece of legislation, which you know, if we, if we talk super technical, right, it stands for Setting Every Community Up for Retirement Enhancement. You know, it's this thing that puts into place numerous provisions intended to strengthen retirement security across the country, blah, blah, blah, blah, blah. But what we have to do is like why, why was this put into place and how's it going to be helpful to us? Well, we know for the last decade plus that the biggest thing out there has been this retirement savings crisis, which is a reality, right? We see that all the time. People come in and they haven't been saving, they haven't been saving properly. They'd been in cash since 2008 or whatever.
David Hicks: 02:19 The average retirement account has less than what, 15,000 in there when you look at these different studies that come out yearly.
D. Ryan Gilmore: 02:26 And it is, it is a crisis like mind boggling. So there are a lot of good provisions within this new SECURE Act. But there are also some potential detrimental things for some longterm legacy type planning at that we'll get into further in the show.
David Hicks: 02:41 Yeah. So this SECURE Act will change your retirement and will effect most of you. So if anyone listening to this podcast right now, this will have big effects on your retirement accounts in the future for better or for worse. So in this episode we're going to be reviewing the most important things need to know about the SECURE Act. We're going to discuss the upside and potential downside to all of these changes. So you can again, further be educated as to how this is gonna impact you and your money. In the future. And then we're also gonna talk about how to take advantage of all of these new changes. So it's important to note that this new law, the SECURE Act, the new law takes effect January 1st, 2020. So if you're listening to this right now, we're already past January 1st. So the new law is in effect and these will affect your retirement savings accounts immediately.
D. Ryan Gilmore: 03:36 And this is going to affect and impact people in a number of different ways. So some of these provisions allow for everybody to participate going forward. Some of these carve out the people who already have requirements, you know, set up for themselves, like required distributions and those things. And you know, it kind of gets into kind of stuck with the old laws which can be in some cases good. And in some cases not as beneficial.
David Hicks: 04:03 Yeah. So one of the biggest changes that this SECURE Act will do is it allows you for employers to offer annuities as investment options. Whenever we say annuities, by the way, you know, people just either run and hide or they just scream or turn off, they just cringe. So annuities though, and we're going to have a, a specific topic you know, Financial Jargon podcast on annuities just because there is so, so much jargon built into the the annuity word itself. So we'll deconstruct that in a future episode. But the bottom line is annuities do have a role in retirement planning and for many retirees having that income stream, that pension plan, which they don't have offered through their employer at this point, now it's just the 401k, the 403b, they're dumping money into those retirement accounts and the onus is on them to create an income stream in retirement. And oftentimes because people don't save effectively or they don't know how this all works because it's more complex, they don't have enough money saved to effectively provide them the cashflow they want or need in retirement. So this SECURE Act opens up the gates for employers to offer annuities in 401k plans, which is a first, right?
D. Ryan Gilmore: 05:12 It is a first, but it's also not a first for the retirement plan industry in and of itself. Right? So we've seen a lot of people come through that have had plans at TIAA, Voya, these 403b's that have had annuity type options that have had certain payout periods, whether it's a five year, 10 year or over the course of the life.
David Hicks: 05:32 So annuities, if you don't know what an annuity is, an annuity is offered by an insurance company. Typically an annuity will provide a guaranteed income stream over the course of one's life. And in this case, within your 401k plans, it's one of the ways where you can create a pension plan. So one of the fears that we find when people have, when they're facing retirement is how do I create income stream in retirement? And oftentimes if you want a guaranteed source on top of maybe your Social Security, you can't find that by being invested in dividend stocks or just a market based portfolio, you then have to go to insurance company to figure out an annuity strategy that will pay you that income stream. So obviously this was built in the SECURE Act because we know life expectancies are longer and longer, and none of these life expectancy factors have changed in years. And so these annuity offerings will allow you to start dumping in money into an annuity that will eventually pay you an income stream as opposed to it just being invested in, you know, stocks, bonds, mutual funds.
D. Ryan Gilmore: 06:33 Right. And that, you know, really important thing to point out is this has to be offered by the plan, right? So not everybody automatically is going to have this annuity option built into their 401k. This has to be set up with the plan administrator, the plan sponsor and updates to the plan documents there.
David Hicks: 06:49 The upside to this, I guess, is the fact that you may have the ability now to contribute not just to your Roth 401k or a traditional 401k, but maybe into an annuity option that will help you provide that guaranteed income stream over your lifetime. Now, there are some downsides with this. As we know and as you probably have maybe figured out just by experience or trial and error. Annuities are complex. They are very complex investment products and there are some good ones. There are some bad ones, there are some in between, but there are thousands of offerings that are out there. So if you have the wrong option available to you, if you pick the wrong choice, it could be detrimental to your portfolio in the future.
D. Ryan Gilmore: 07:29 And like some random example could be your oldest daughter Miley, she is a good soccer player, she likes playing soccer. There's a bunch of different types of sports balls out there that she could utilize and practice. Would it make sense for you to get her a baseball? No. To practice her soccer with? No.
David Hicks: 07:46 I made that mistake.
D. Ryan Gilmore: 07:47 You may that mistake. Or a football? No, that doesn't make any sense. In her situation, in her context, she's going to need a soccer ball. So you know, when you think of annuities, you can think of them. There's a whole different offering, different types of annuities that are out there. Just like there are different, you know, sports balls that are available for people to, to play and practice within only the right one is really gonna lead to more success.
David Hicks: 08:12 That's right. I like that. So what you need to do is educate yourself. Educate yourself on how annuities can potentially provide income certainty for you and your retirement. I think that's the key. Do you understand them fully? Do some research, work with an advisor who is independent so that they can educate you on, on different types of annuities that may be a good fit for you. Or if you are being offered an annuity within your 401k plan, I would take some time and get educated with what your options are and really consult someone who can further teach you how this could be beneficial or detrimental to your, to your future retirement plans.
D. Ryan Gilmore: 08:47 And really understanding the actual income, the, at the end of the day, what that's going to provide for you. Because you know, just because you're getting this 401k annuity option doesn't mean that it's magically going to generate for you $30,000 a year in income. Right?
David Hicks: 09:01 Yeah. You need to be realistic with it and understand how truly they do work because you know, people who've had bad experiences with annuities before they're told one thing and something else happens. So I would just encourage you to also have an open mind as well. We're big fans obviously of educating and being a partner for you as you transition through different phases of your financial life. That's truly what a financial advisor does for you. But you truly need to have an open mind to see if an annuity strategy would be right for you. And if you don't have that offering, I would say within your 401k plan and you're curious about annuities, I would find an independent advisor to help you uncover what they are. And I think it's really important to find an independent advisor who's unbiased, who has offerings from a bunch of different annuity companies and understands how they work. So that way you can see if it's a good fit for you.
David Hicks: 09:55 Okay. And another big change with the SECURE Act is the increasing of the required minimum distribution age, the RMD. So the changing of the required minimum distribution age, this is gonna affect almost every single individual that's out there that is not 70 and a half right now.
D. Ryan Gilmore: 10:13 And before we get into that, let's chat on what in the world is an RMD and who does it apply to?
David Hicks: 10:18 So a required minimum distribution, the RMD, that's jargon, that's the Financial Jargon. All that is, is that the IRS at some point is going to make you take out money of your 401k or your IRA and they're going to expose that to tax. So it's a it's a way, it's a big tax grab for the government. And what happens is you have been contributing to your 401k and your IRA all of these years. You've been taking advantage of the tax deduction that you've gotten or the lower of income as you've been working. And eventually as you get older and you age out and you start getting into retirement, the IRS is going to say, Hey, look, thanks for playing this game. We appreciate this, but now you have to take out a certain percent of your portfolio starting at, it was at age 70 and a half, and that percent was approximately 3.65% from the first year of your retirement account of your required minimum distribution age. And that's going to be a taxable event for the rest of your life. And so that affects every single individual who has a retirement account. So this extension of the required minimum distribution age now is not 70 and a half, but now it's age 72.
D. Ryan Gilmore: 11:26 All right, so age 70 and a half hasn't been changed or updated since the 60s. Life expectancy is obviously been extending further and further and further and further. And obviously it's good that Congress is realizing that people are living longer and kind of extending out the the required distribution age, which will allow some people, which is this really an upside. This will allow people not only to continue, you know, defer taking the income that they probably don't need, but will actually be more beneficial for them if you've not turned 70 and a half and 2019, this will be beneficial because it gives you some extra time to do some Roth conversions.
David Hicks: 12:06 That's right. So yeah, Roth conversions, you know, that's again, Financial Jargon. You know, we get a lot of people who ask us, well, I can't contribute to my Roth. And we're talking about conversions because there's some confusion there because they're not educated on the difference between contribution and conversions. I think this law, this changing the stretching of the age to age 72 is, is so important for you. If you're in that retirement period where you're almost retired or just about to be retired, we have this unique combination of a really favorable tax law and tax environment. Tax brackets have been stretched out. Your standard deduction has doubled, and now you have this gift of not having to take those required distributions for a couple extra years. You can do some significant tax planning by understanding Roth conversions, understanding cashflow and distribution from which accounts would be most beneficial for you during this period of time. I can already think of maybe 50 of our clients who are able to take advantage of this and be able to continue doing their Roth conversions that we've already planned for five or six years during this current tax environment. That just allows us to convert even more in a lower tax rate and then have more money that's not going to be subjected to required distributions in the future, which I personally believe, and I don't know about you, taxes are going to go up and we know they're going to go up automatically in 2026 when this current tax law sunsets. But in the future we have other podcasts and other resources that talk about how taxes are going to be skyrocketing in the future. So let's protect and you need to protect more of your money now and take advantage of this new SECURE Act that allows you to extend your required distribution age to age 72. And understand how it really works within your personal finances to, to save more in future taxes.
David Hicks: 13:54 You know, and some of these conversations we've had with clients, right where, where they are being forced because of their required distributions to take out, you know, in a couple of years you're going to be forced to take out 9,000 or 16,000 or 27,000 or, or $40,000 for your required distribution. Any conversions have to be above and beyond that. Well now think of that extra nine, 17, 27 $40,000 that you're not required to take out. But instead you could reposition that work on paying the taxes, but reposition that over into a Roth IRA.
David Hicks: 14:25 And that that Roth IRA will never be subjected to required distributions. It grows tax free, comes out tax free and it stretches tax-free, which we'll get into one of the other changes here in a minute about the the changes in the inheriting of an IRA. But I do want to circle back cause there are some downsides with this as well. If you turned 70 and a half in 2019 so if you've already turned 70 and a half.
D. Ryan Gilmore: 14:47 So that's June 30th birthday or before.
David Hicks: 14:50 That's right, you are still required to take your required distributions this year and future distributions starting under that old old law.
D. Ryan Gilmore: 14:57 Sorry to be the bearer of bad news for you.
David Hicks: 14:59 And if you miss that and there's a 50% penalty on the required distribution that you missed. So you certainly just don't want to say, Hey look, this law changed. I don't need to take my distribution anymore. I'm already 71 so I'm gonna wait till 72 to do that.
D. Ryan Gilmore: 15:12 So if you need to take a $10,000 distribution and you don't do it, the government's going to take automatically half of that or $5,000.
David Hicks: 15:20 That's right. And then any other time you still have to take the distribution now on top of that. So what do you need to do? You need to understand the current tax law. You need to understand where your current taxable income falls. Obviously you need to know what your birthday is, how old you are, that's important. And just know that you will have until the end of 2025 to take advantage of these stretched tax brackets, higher standard deductions. And this extension of the required minimum distribution age may allow you to convert more of your IRA assets and will essentially help you keep more of all of that retirement money that you put together.
D. Ryan Gilmore: 15:57 One thing that we really need to touch on and chat about is this idea of a stretch IRA. This has been a something...
David Hicks: 16:06 More jargon.
D. Ryan Gilmore: 16:06 That is more jargon. It's full of jargon. That's what we do. So what is a stretch IRA? A stretch IRA is this, David, you pass away and your daughters inherit your IRA. Under the old laws and your daughters would be able to inherit those assets as an inherited IRA and then take distributions based off their life expectancy, which theoretically could continue just for the rest of their life. And they could just take this little minimum amount, you know, here's a little gift from dad every single year for the rest of their life. Unfortunately right there, there's some good things that happen with the SECURE Act and there are some not good things. And this is potentially one of those not good things where the stretch IRA to one degree is still there. But there are some, some specific provisions.
David Hicks: 16:53 Yeah, so the inherited IRA, the stretch IRA, whatever jargon you want to use there for financial planners, this has been a great way for them to show individuals how to have strong estate planning, legacy planning with their finances. So it did allow them for non spouse beneficiaries to say, Hey look, you're going to get these retirement assets. These are going to be taxable eventually. But since you inherited these you're able to stretch, like you mentioned, that obligation over your lifetime and you allow the bulk of that to grow tax free.
D. Ryan Gilmore: 17:23 Which helps with the tax burden for the people inheriting.
David Hicks: 17:27 Exactly. And yeah, so a lot of people are going to have this massive wave of money. That's being passed on to the next generation as all these boomers kind of age out,there's going to be this huge inflow of, of inherited money. And so typically when people inherit money, it's when...
D. Ryan Gilmore: 17:40 And by age out, you mean die.
David Hicks: 17:41 By die. I don't like that. Yeah, you're right. That's a technical term age. When we do financial planning in a, in by the way, in office and we are looking at numbers, we have to put a an age out date. And so often times clients will say, you know, thanks. Thanks. I like when I see that up there. That depresses me a little bit. Thank you Ryan. I guess I'm going to die in 2038. I appreciate that. But so yeah, this stretch option that you have is no longer going to be available. So I would say this is going to be a big conversation topic that we're going to have with all of our clients going into this year. Just because from a planning standpoint, you know, our goal is to educate and then obviously be that partner with our clients. That's what you should be looking for with an advisor and things change. And so as laws change, as tax codes change, we need to be able to update plans accordingly. So this is one of the things that will change. The SECURE Act now for required beneficiaries, so a non spouse beneficiary. So in this case, like you mentioned, like my kids if they inherit my retirement assets, they will now have to withdraw all of those assets from that inherited, They can still create an inherited IRA, but they must withdraw all those assets within 10 years. Within 10 years, there's no required distributions that are required, which is different than now, within those 10 years. But the entire balance must be distributed after the 10th year. So now you no longer have, the ability stretched out over that beneficiary's lifetime. They then could even stretch that out. If they didn't spend all that money and distribute all that money during their lifetime, they could actually pass that down to their next generation. So it could have been a multiple generation legacy play the stretch IRA under the old law. Now that's gone. Now it's just 10 years.
D. Ryan Gilmore: 19:21 And think about it. You know, from a planning perspective, let's say you are in your sixties you're getting ready to, you know, retire. You want to retire around, you know, your full retirement age. Maybe that's 66/67 and all of a sudden your mom or dad or somebody else passes away and you inherit this block of money. You could say, you know what? I'm going to retire at this time. I'm not going to touch my IRA. I've got 10 years to do it. I'm going to work for another two or three years, and then I'm actually going to take those distributions potentially depending on how big it is that may be able to help supplement my income for a few years, which may allow me to be able to defer my social security because I'm going to have to liquidate that account anyways over 10 years.
David Hicks: 20:06 Yeah, no, that's a great point. It's just more complexity. And I think the more complex your situation, the more you need to be working with an advisor to help you walk through these different phases of your life. Cause that's a, that's a great point. Where if not, if you just kind of go on about this, doing this yourself and you inherit money and then now all of a sudden you're taking distributions from your IRA, you get your social security set up, maybe you have a pension. And so you have all these income streams coming in and now you have this stretch IRA that you just inherited and now you have to take out 10% of that block of money for 10 years that could massively change your tax situation. And the timing of this, again in the future taxes are going to go up. You could be paying a lot more in tax over that over your lifetime or over this inherited account that you received. And this is a huge, huge tax grab by the IRS. This is massive. This is a massive change where this is going to generate a lot of taxes to the IRS if we're not careful with it. You could see a lot of your inheritance be depleted more than than you desire. So that's a great point. Understanding the complexities and cashflow and timing of all this, that's what an advisor will do for you and that's exactly one of the benefits of working with someone with your, with your overall financial planning. Now I will say one of the upsides to this is that at least you're still allowed, I mean the silver lining, I guess we got to find something, or at least you're still allowed to stretch out that tax obligation over 10 years rather than it being a no, the stretch s gone all together. It's all going to be taxable and that one year that you received that inheritance, so at least we still have that at this point and so that's a good thing.
D. Ryan Gilmore: 21:46 Well and technically, right? That could give you the opportunity if you're, if you're going to change careers at some point, then you could work and say, you know what? I'm going to work here for six years and then I'm going to take two years off to find...
David Hicks: 21:58 To find yourself?
D. Ryan Gilmore: 21:58 To find yourself, go on a across country excursion. And then that time paid for because you've got to pull it out anyways.
David Hicks: 22:07 So we have a great little resource. It's on our show notes and Financial Jargon.com. It's a great resource. That'll show you the difference between the old law. So if you are expecting an inheritance or if you just want to see the impact of the new law on inheriting an IRA it'll show you what your tax obligation would have been under the old law from stretching that out. And then what the, now the new tax obligation would be under the the now SECURE Act, the new law that we have to face. And it's really quite shocking to see the difference in how much taxable income that you're going to have. So go to that resource at Financial Jargon.com to review the differences between how it used to be and stretch now under the new SECURE Act. So the SECURE Act is just another example of how the government is constantly changing things for better or for worse. We've been encouraged to save into these retirement accounts all of these years and now all of a sudden the game's changed and we've got to change course and it's going to affect us on how we distribute all these assets in these retirement accounts in the future. So changes are going to happen. They're going to be inevitable. Understanding how the SECURE Act will affect you personally is one of the reasons why you need to be working with a financial advisor who is on your side, who's able to educate you and be your partner as things change because things unfortunately will always be changing. As always, I encourage you to visit Financial Jargon.com visit the resources page. You can view show notes, you can view all the links and also our webinar that we have that goes into more detail about SECURE Act and be sure to join Ryan and I on the after the show show as we continue our discussion on the changes and the effects that the SECURE Act will have on your financial future.
Speaker 1: 23:56 This was another episode of the Financial Jargon podcast. Be sure to visit Financial Jargon.com for the latest episodes, show notes and resources discussed in each show. While you're there, subscribe to Financial Jargon on your preferred podcast provider like iTunes, Stitcher, or Spotify. And if you've liked what you've heard and you're ready to start a real conversation with a financial advisor, visit Oakmont advisory.com today.
David Hicks: 24:35 Yeah, Ryan, this SECURE Act is really gonna affect so, so many people and I can't, I can't wait to to talk with clients about how this is going to hopefully enhance what we're currently already setting in motion. But it just gives us some more time to do some, some proper planning. And especially when you look at the impact of, of doing a Roth conversion, of understanding the different cashflow timing. I think from a concern standpoint, I think that that concerns more people maybe than not saving enough. Cause if you're already in retirement or close to retirement, I that's your biggest concern is I've got all these accounts out there, I hear all these things on the news or read articles. I have people telling me they're doing these certain things. I just don't understand how it all fits all, all these different puzzle pieces fit together. I think that this SECURE Act will certainly allow so many more people to do proper planning and save more of their hard earned money that they've put away in those retirement accounts.
D. Ryan Gilmore: 25:27 I think that there are going to be some people who hear that required distributions are starting at 72 and they might in their mind think, Oh man, I, I'm not going to be able to take money out. I'm going to have to work till I'm 72. And that's not the case. Right? The required distributions are just, there is a way for the government to help generate extra revenue and not allow you to have tax deferral for, you know, in perpetuity forever. So you still have access to your money even, you know, as soon as 59 and a half without penalty. But, but the ability for you to not be forced to take money out until 72.
David Hicks: 26:03 Well and people are working longer well into their seventies now.
D. Ryan Gilmore: 26:06 Your dad's a great example. He's 97? How old is he?
David Hicks: 26:09 I think he's, yeah, 103. He's certainly in his, in his seventies but yeah, this is one of the changes that has also come about because it's secure, which this is a nice segue is the contribution age has been eliminated as well, right? I mean it's, it used to be where you couldn't contribute if you were working at earning an income. Like for my dad for instance, contribute to his 401k cause that's an employer sponsored plan. But he had to stop contributing to his IRA after he turned 70 and a half. Yeah. So that was just a rule that was mandated by the IRS. But now that's been eliminated in the SECURE Act. So if you are still working and let's say you don't have that retirement employer plan, 401k, TSP let's say doing consulting work or whatever it may be, now you have the ability to contribute to that traditional IRA.
D. Ryan Gilmore: 26:54 Which has kind of offset some of the distributions that need to come out.
David Hicks: 26:59 I think, you know, I would much rather you have the ability to contribute to a Roth 401k or a Roth IRA, which you certainly could do after 70 and a half. But it's still a good way, again, breaking down some of those barriers of entry to save more. That's one of the overarching goals of this SECURE Act. And so that's, that's been eliminated that, that contribution age. So that's, that's one of the other changes that have come about.
D. Ryan Gilmore: 27:20 And your dad also is a small business owner, right? And this is going to have this SECURE Act is going to have big impacts for small business owners, specifically those who have wanted to dip their toe into the 401k waters, into the retirement plan waters. But were nervous to do so about size and about all of these other things. Well, what the SECURE Act does is it broadens what's called a MEP or a Multiple Employer Plan. Traditionally a MEP would be a, there had to be some common, you know, unifying piece and that may be just like one owner of multiple businesses or in the same industry. Well, the SECURE Act kind of gets rid of that and it's going to allow more small businesses in communities to band together to be able to provide good retirement plans that are lower cost for everybody. And it's going to give their ability to retain employees, you know, give them better ability to retain employees for the long haul.
David Hicks: 28:19 When you have a good employee and you give them good benefits and obviously it's going to be beneficial for everybody. And we find that a lot of small businesses here just don't, they don't have good retirement plan set up for, for not only themselves as owners but also for their employees as well. So this is you know, one more step in the right direction to, to get people to start saving. And there's also incentives, right? So for small business, for employers, there's also a, a tax credit for employers who automatically enroll workers into retirement plans, right?
D. Ryan Gilmore: 28:49 Yeah. So that, that automatic enrollment is, is a good thing. And there's a, there's a behavioral aspect to it, but the big idea here is that with the auto enrollment, people have to opt out of contributing to their 401k.
David Hicks: 29:05 Or they automatically opt in.
D. Ryan Gilmore: 29:06 They automatically opt in without having to check a box or do anything. They automatically are going to have salary deferrals put into a retirement account for them. There was a maximum limit that you would be auto enrolled at. And that was 10% deferrals. That's actually went up to I believe 15% so, which is, which is good. Right? And then the onus is then on the employee to say, look, I don't want to do, I don't want to save for my future. Please, please, no, I don't want to have a secure future. So this is actually a really good thing, so auto enrollment and just the, the carrot that the government's putting out there for employers to add this provision into their plans of the auto enrollment, just to get that additional tax credit.
David Hicks: 29:53 Okay. Another change that has come about because of the SECURE Act of 2019. And this kind of strikes home with you and actually maybe with me as well. So for new parents through birth or even adoption. So you recently adopted a baby boy.
D. Ryan Gilmore: 30:10 A beautiful baby boy from Baton Rouge.
David Hicks: 30:13 He's a big, he's big now.
D. Ryan Gilmore: 30:14 He's a big, yeah, but he's 20 something months.
David Hicks: 30:18 That's right. So if you are a new parent, either, you know, whether you birthed or a adopted, you're eligible now to withdrawal $5,000 penalty free to offset the cost of the adoption expenses or qualified delivery expenses from your retirement accounts. That's kind of a nice benefit.
D. Ryan Gilmore: 30:37 It's, it's a nice resource to have available. Now we would advise against tapping your retirement accounts.
David Hicks: 30:46 Right, because that's for retirement.
D. Ryan Gilmore: 30:48 That's why it's called a retirement account.
David Hicks: 30:49 But a lot of people do tap that during life for that cause really, things come up, things come up. So this is a great way not to have that 10% penalty imposed on you and an automatic 10% withholding of taxes.
D. Ryan Gilmore: 31:01 And adoption is expensive. And a lot of people don't realize that there are ways that you could go about funding an adoption. So for those people that don't have means or don't have a larger community that, that might be able to help them out, this could be a way to help offset some of those, you know, pretty significant adoption costs. It always blows my mind how much it costs for people to like bring it child into their home. Like tens, twenties, thirties, forties, $50,000.
David Hicks: 31:34 And that's natural and adoption.
D. Ryan Gilmore: 31:35 Natural and adoption. It's the kids.
David Hicks: 31:37 It's just like too expensive.
D. Ryan Gilmore: 31:47 But speaking of kids, right? Kids are expensive and one of their biggest expenses is in, sometimes the onus is on them is college right? Is education type expenses. The SECURE Act makes a provision for withdrawals up to $10,000 from 529 plans. That's jargon,
David Hicks: 32:03 That's jargon. What is the 529 plan?
D. Ryan Gilmore: 32:05 529 plan is an education savings plan where you can put money in, it gets invested. Oftentimes it's going to be invested in like junior target date funds. So think of your retirement plan and you have a 2030, or 2025 target date fund. They have, these as like a, like a target graduation date fund.
David Hicks: 32:30 So it's based on time horizon.
D. Ryan Gilmore: 32:32 Based on time horizon. So, you know, if your kid or grandchild is in, you know, they're, they're five or six, they're going to be a little bit more aggressive theoretically, or they could be more aggressive depending on how you get an invested than let's say when they're 12 or 18 years old when they're getting closer to college or using some other you know, these expenses you can use these for, for private school to help cover costs there. It's just a great way to help defer some, some to actually to have some tax free growth in an account. So put some money away, have some tax-free growth, and then have some tax-free ability to pull money out to help pay for educational expenses.
David Hicks: 33:16 So this just allows people, if you have unused money in your 529 plan, let's say you've already completed college, or if you have the a loan that's still out there and you have some money, that's the kind of built up in a 401k, I'm sorry a 529 plan, You can withdraw that to repay some of those loans. So it's not going directly like, you know, like you mentioned, you know, 529 plans is for expenses that are directly associated with the cost of that college, that tuition, et cetera not necessarily loans, loan repayments. So now, now you're able to do that.
D. Ryan Gilmore: 33:46 This is kinda crazy. So this is the status of the, these numbers are a little bit old that just Googling student debt says a student loan debt has soared from $260 billion in 2004. That's a lot of money, right? To 1.4 Trillion in 2017 and we're three years after that. And that is just, that is just astronomical. So for the, for people to have the ability to pay off some of those student loans may be utilizing something like a 529 that they've had. It could be a really, really big benefit for them.
David Hicks: 34:16 I'm excited about the SECURE Act. I'm excited to have conversations with with people about it. I think people, once they wrap their minds around it, they're going to see more positive things that will come out of it. And I think they, if they understand their situation, they can really take advantage of this time to reposition assets saved more than money, save save more on not paying taxes, which are all really, really, really good things.
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