More Choices for Retirement Savings
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
A new law changes rules in 2021 and beyond, erasing a previous age limit on contributions.
Big changes are in store for finances in retirement, thanks to legislation that Congress passed in December. The SEXURE Act (short for Setting Evert Community Up for Retirement Enhancement) is the most important law affecting retirement since the way for automatic enrolment in 401(k)s.
The SECURE Act makes several changes in how workers and retirees can save and spend their retirement money, with provisions taking effect at different times. Here are powerful ways to take advantage of the SECURE Act, roughly in order of how soon you can employ them:
Save more
You can now put monthly in a traditional tax-deferred individual retirement account (IRA) for as long as you are earning income, thanks to the elimination of the long-standing previous age limit of 70 ½. So as long as you are still on the job, you can contribute as much as you earn, up to for $7,000, assuming the employed spouse’s earnings match or exceed the couple’s total contributions.
Withdraw less
If you’re turning 70 ½ this year, you won’t have to take required minimum distribution (RMDs) from your IRA or your 401(k) from a former workplace, unlike before. Instead, you can wait until 72. If you turned 70 ½ in 2019 or earlier, however, you’re stuck. The old RMD rules still apply.
Rethink inherited IRAs
If you inherited an IRA before 2020 from a parent or other family member, you could stretch withdrawals out over your entire life, potentially maximizing untaxed growth. Now, starting with IRAs inherited in 2020, you must take all the money within 10 years unless the IRA was your spouse’s or you fit other exceptions, such as if you’re disabled. If it’s a traditional IRA, withdrawals over that decade could mean relatively large tax bills. Roth IRA withdrawals are tax-free. So, if the IRA you inherit is a Roth, you could let it grow tax-free for 10 years, then close the account. And if it’s a traditional IRA, you could withdrawal money in years when your earnings and tax rates are lower.
Count up your hours
Currently, your employer can exclude you from its 401(k) plan if you work less than 1,000 hours a year—roughly 20 hours a week. The new law lets you participate if you have worked at least 500 hours a year for three straight years, or if you have completed one 1,000-hour year on the job. This rule doesn’t go into effect until next year, though, so if you’re a part-timer, it could take a while to qualify.
Nudge your boss
Do you work for a small business? Starting next year, small companies will be able to band together to form 401(k) plans, and financial firms will likely offer plans that small companies can opt into. So, lobby for your employer to join up. The government will give your boss a tax break for doing so, and you’ll probably benefit, since research indicates that the more people there are in a 501(k) plan, the lower the expenses for employees.
( Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr. Aslam does not have anything for sale.)
