The Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019, introduced several changes to retirement and tax laws. While these changes affect retirees of all income levels, wealthy retirees, in particular, should consider taking specific financial steps to optimize their retirement plans. Here are five key actions to consider:
1. Reevaluate Your Required Minimum Distributions (RMDs)
The SECURE Act increased the age for starting required minimum distributions (RMDs) from retirement accounts to 72, up from 70½. This delay provides an opportunity for wealthy retirees to continue tax-deferred growth within their retirement accounts. If you don’t need the funds immediately, consider deferring your RMDs to allow your investments to grow further.
2. Review Your Inherited IRA Strategies
The SECURE Act also brought significant changes to inherited IRAs. Most non-spouse beneficiaries are now required to withdraw the entire account balance within ten years of the original account owner’s death. Wealthy retirees with significant retirement assets should review their estate planning and beneficiary designations to minimize the tax implications for heirs. This may involve converting traditional IRAs to Roth IRAs or implementing other tax-efficient strategies.
3. Consider Charitable Giving with Qualified Charitable Distributions (QCDs)
Wealthy retirees who are charitably inclined can take advantage of Qualified Charitable Distributions (QCDs) from their IRAs. This allows you to make tax-free charitable contributions directly from your IRA, count toward your RMD, and reduce your taxable income. It’s a tax-efficient way to support your favorite charities while minimizing your tax liability.
4. Evaluate Roth Conversions
With the SECURE Act’s changes to inherited IRAs, converting traditional IRAs to Roth IRAs can be a strategic move for wealthy retirees. While Roth conversions trigger immediate taxes, they provide tax-free growth and distributions in the future, which can be advantageous for heirs. Careful planning is essential to determine the optimal conversion amount and timing.
5. Revisit Your Estate Planning
Wealthy retirees should revisit their estate plans, including wills, trusts, and beneficiary designations. The SECURE Act’s impact on inherited IRAs and retirement accounts may require adjustments to your estate planning strategy. Consult with an estate planning attorney to ensure your wealth is transferred efficiently and in accordance with your wishes.
In conclusion, the SECURE Act introduced significant changes to retirement and tax laws that can have a meaningful impact on wealthy retirees’ financial strategies. Taking proactive steps to optimize RMDs, review inherited IRA strategies, utilize charitable giving, consider Roth conversions, and revisit estate planning can help maximize the benefits of these changes and ensure your retirement wealth is managed effectively. It’s advisable to consult with a financial advisor or tax professional to tailor these strategies to your specific financial situation and goals.
