Five Major Takeaways From The SECURE Act You Need to Know for Estate Planning

Saving for retirement is a task that unfortunately we Americans have become worse and worse at over the years. Over half of the American population has not saved enough for retirement at the time of retirement and end up having to return to work with at least a part-time job. A full 25% of Americans don’t have any retirement savings or plans in place at any given time in their working careers. However, a law that was just signed into law by Congress on December 20, 2019, aims to improve and aid in Americans preparing and saving for retirement. The bill, called The Setting Every Community Up for Retirement Enhancement (SECURE) Act, has five major key takeaways that affect estate planning:

  • Part-time employees will now be qualified for retirement plans under their employers.
  • Small business owners will now be able to set up 401(k) accounts for their employees. 
  • 401(K) statements will now need to disclose potential monthly payments to the recipient on every balance statement 
  • The age at which you need to begin withdrawing money from retirement savings accounts has been shifted to 72 years, instead of 70.5 years. 
  • IRA distributions have been drastically altered.

How Are Part-Time Employees Affected?

 Under the SECURE Act, part-time employees who work at least 500 hours a year and have been with the institution for 3 years or more will now not be exempted from contribution plans from the employer. This will have a huge impact on those who have moved from full-time employment to part-time, instead of fully retiring. This will have a major impact on those who are 65 and above, who, in the last decade or so, have been forced to continue working in some capacity because their retirement accounts cannot support them fully. 

How Are Small Business Owners Affected?

The next large take-away from the SECURE Act is that now small businesses will be able to offer retirement plans for their employees. Previously, it was costly for small businesses to offer these kinds of options to their staff members, leaving employees to plan for themselves. Now, it will increase the cap of the income that employees need to be able to save from 10% of income to 15% of their income. This adjustment is important for those who have spent their lives in small businesses, and have been left to their own devices in terms of retirement planning. This aims to assist them in making their retirement planning more feasible.

How is My 401K Affected by the SECURE Act?

 Another significant part of the SECURE Act is the transparency it will require from 401(K) accounts. As of right now, 401(K) accounts are not required to disclose the monthly allowance the retiree would be receiving on each statement. While this might seem trivial, the sum of money saved has been allowing Americans to become falsely secure in the amount they are saving, without having a real concept of what that sum will translate into. Now, 401(K) accounts will be required to display the monthly allowance on every balance, for the retiree to better understand exactly the sums they will be receiving when they do retire. 

How Does the SECURE Act Affect Our Retirement Age?

Finally, the SECURE Act adjusts the age at which people need to begin withdrawing money from 70.5 years to 72 years of age. While this is a subtle change, since the majority of people are working into more advanced years anyways, those who do not need to withdraw money will have an additional 1.5 years to keep that money in their retirement accounts. Withdrawals from the retirement accounts are still allowed before then, but this increase in age is aimed at helping those who are continuing to work anyways, by allowing them more time to save.

How Does the SECURE Act Affect An IRA?

Trusts should no longer be beneficiaries of most IRA’s under the SECURE Act.  Previously if your living trust was written properly your trust could be the benefit of your IRA so that your trustee could maintain some control over your beneficiaries.  Now with the SECURE Act, if your trust is named one of the beneficiaries, the beneficiaries of the trust will probably have to take distribution of the entire IRA in the 10th year after death, which will result in a larger tax burden. Finally, if your IRA beneficiary is very young or disabled, you will want to consider a “trusteed IRA” which allows a professional to manage the IRA after your death.

How Does the SECURE Act Affect My Inherited IRA?

You will have to pay taxes on inherited IRAs sooner than you may have expected. The SECURE Act essentially eliminates the “stretch IRA,” which was an estate planning method that allowed IRA beneficiaries to stretch their distributions from their inherited account — and the required tax payments on them — based on their life expectancy. For example, if you named a grandchild as your beneficiary, most of your account could’ve stayed invested for decades after your passing, and the grandchild could’ve continued to take advantage of the tax benefits. Under the new law, however, most beneficiaries must now withdraw all the distributions from their inherited account and pay taxes on it within 10 years. The exceptions to this are for spouses and the chronically ill or disabled. One important thing to remember is that this provision is not retroactive and will not affect those who have already inherited an IRA. It will apply to those starting on Jan. 1, 2020, and may affect the estate planning of those planning to pass on an IRA to a non-spouse.

What Should I Do If My Living Trust Is Named As Beneficiary Of My IRA?

Under the SECURE Act, if your living trust is named as beneficiary of your IRA, your beneficiaries will probably only have two options, both bad: cash it all out immediately, or cash it all out in year 10.  This may cause a huge tax.  There are other options available, but these need to be explored on a case by case basis.  For most people, you simply need to name your spouse as primary IRA beneficiary, and your children as contingent IRA beneficiaries.  However, if your children are young, disabled or foolish, other options will need to be explored.  For example, you may be able to name a trust company or fiduciary as trustee of your IRA.  You can also explore ROTH IRA conversions with your tax and financial advisor.  More complex but powerful options may also be available.

What Should I Do Now?   

With these new changes in retirement planning, you may still have some remaining questions. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your retirement, establishing a trust to protect your legacy and your assets, and any other legal questions you may have. Whether it is in retirement planning or any other kind of legal counsel, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with over 25 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want some help navigating the legal side of your retirement process, feel free to visit us online, in person or call us by phone at (925) 757-4605.


What Will The SECURE Act Mean For My Retirement Plans?

What Will The SECURE Act Mean For My Retirement Plans?

What are your retirement plans? Have you thought about how you will pay for your housing situation? Have you reserved enough money for extra expenses? Will the retirement age change by the time you retire? All of these questions are valid and you should take them into consideration as you grow older. With policies changing regularly, it is critical to stay up-to-date to be prepared for any situation.

In 2019 the senate will decide whether they approve the changes for the current retirement requirements or if they will make any changes at all. With the House of Representatives already approving the Setting Every Community Up for Retirement Enhancement Act (SECURE Art), the requirements for new retirement plans will change. If passed, you can expect some changes to be:

  • More part-time positions offering 401(K) plans
  • Contribution to traditional IRA’s (Individual Retirement Arrangements) for as long as desired
  • Penalty-free withdrawals for those who fall into specific groups/circumstances
  • The age for retirement to move from 70 ½ to 72 years of age
  • A requirement to withdraw from inherited retirement accounts within 10 years of retiring

Retirement should be an exciting time, away from confusing language and ever changing politics. For this reason, The Law Offices of Joel A. Harris works hard to provide you with information to make it easier for you to understand the new changes the SECURE Act brings. We are located in Concord, Walnut Creek and Antioch, to be most convenient to our clients. If you would like to visit us in person, by phone at (925) 757-4605 or via website, feel free to contact us and we will be more than happy to help!

What Changes Will I See?

There are quite a few changes that you can expect once the SECURE Act is passed and put into practice. Below are a few changes that you can expect and how you can prepare for them to better your retirement experience:

  • Part-Time 401(K) Options: There is currently a minimum number of hours worked in one year (~1000 hrs.) that decides if a worker is eligible for a 401(K) account. With the SECURE Act part-time workers will become eligible for a 401(K) account, so that they can start adding funds to their future income. If you would like to read more in detail about this change, go here.
  • Inclusion of Academic Income: At the moment, certain academic stipends and non-tuition aid are not treated as income for purposes of IRA contributions. With the SECURE Act in place, these kinds of aid and financial support will be included as a form of income. This means that higher taxes may be paid, but more money may be taken out when needed. If you would like to read more about this, check out this article
  • Removal Of Age Limit For Contributions: The SECURE Act would remove the current age (currently 70 ½ years old) restriction to contribute to a Traditional IRA. This change can be seen as a positive change since the age of retirement may change over time, which would affect the age restriction. If you would like to learn more about this, we recommend that you read this article.
  • Limitations on Tax-Advantages After Death: A benefit that was available to families in the past has been the inheritance of retirement funds. This option became popular in the 1960’s and can still be seen today. With the SECURE Act in place, family members who benefit from retirement inheritance may find themselves with stricter time limits on both the time it takes to withdraw the money, as well as how much can be withdrawn at one time. If you would like to read more, you can go here.
  • Penalty-Free Withdrawals for Birth or Adoption of Child: The changes to the SECURE Act would allow new parents, biological or adoptive, to take up to $5000 from their 401(K), IRA or other retirement accounts. This new change is beneficial for parents since there is also no limit as to how many times a future retiree can use this benefit. It is important to state that new parents should take into consideration their future retirement costs. If you would like to read more about penalty-free withdrawals,, read this article.

What Should I Do Now?

If you are planning to retire shortly or have yet to plan for retirement, The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you plan accordingly. Joel Harris is an attorney with nearly 30 years of experience in estate planning, trust and probate law. Joel works with expert tax and financial planners who can take the time to help you plan for retirement, create a budget, document progress and provide useful reminders pertaining to your personal retirement plan. If you are not sure how to begin planning for retirement, feel free to visit us online, in person or by phone at (925) 757-4605. Our priority is your future success!


What are the Estate and Gift Tax Limits for 2019?

Are you worried about the Estate and Gift Tax limits for 2019?  Confused about the new tax provisions? The IRS has issued tax year 2019 inflation adjustments for more than 60 tax provisions, including tax rate schedules. They also announced the official estate and gift tax limits for 2019 as follows: the estate and gift tax exemption is $11.4 million per individual, up from $11.18 million in 2018. That means an individual can leave $11.4 million to heirs and pay no federal estate or gift tax, while a married couple can shield $22.8 million.  In this article we break down the Estate Tax Exemption, the Gift Tax and what you can do now to minimize your future tax liability.

1. What Is The Estate Tax Exemption?

    The estate tax is a federal tax imposed on estates over a certain value. That value is known as the “estate tax exemption,” “combined estate and gift tax exemption,” or “unified credit.” If an estate is worth more than the exemption amount, the value over the exemption amount will be taxed. If the estate is worth less than the exemption amount, there is no tax liability. The higher the exemption amount, the less estates will have to pay in taxes. The Trump Presidency tax cuts are scheduled to expire after 2025, meaning the estate tax exemption will revert to its inflation-indexed base of $5 million. Estates of decedents who die during 2019 have a basic exclusion amount of $11.4 million; the previous year was $11.18 million. The basic exclusion amount for gift and the estate tax is $11.4 million plus deceased spousal unused exclusion amount. If you live in one of the 17 states or the District of Columbia that levy separate estate and/or inheritance taxes, there’s even more at stake, with death taxes sometimes starting at the first dollar of an estate.  California does not have a State inheritance tax.

2. What Is The Gift Tax “Annual Exclusion Amount” For 2019?

The annual gift exclusion amount for 2019 remains at $15,000 per individual each year, unchanged from 2018. This means you can give $15,000 to as many people you want each year without filing a gift tax return. You can exclude that $15,000 from a gift tax return. For most people, gift taxes will not be a concern since the combined estate and gift tax exemption is so high. However you are still required by law to report gifts over the annual exclusion amount on a gift tax return, IRS form 709. There are few significant changes to Form 706, United States Estate and Generation-Skipping Transfer Tax Return. The one change that will impact all filers is the elimination of the allowable State Death Tax Credit, for decedents dying in 2005 and later years, is a deduction.

3. What Can You Do Now? Minimize Taxes Through Estate Planning

Sometimes gifts can be used strategically to avoid estate taxes or to minimize other problems after death. There are many advanced estate planning strategies available to help reduce or minimize the estate tax. Other times, gifts can have adverse tax consequences. Estate and gift taxes are a complicated estate planning topic. It is always a good idea to talk to an attorney before making a major gift. Misunderstanding these concepts or failing to prepare for them can hold critical consequences for your beneficiaries. As always, our advice is to speak with an experienced estate planning attorney so you are able to choose the best path to protecting your assets.

Are You Worried about Your Estate Plan?

If you are not prepared with a current estate plan then your family could be vulnerable to higher tax bills, extensive legal fees, and familial conflicts. To avoid those obstacles you should visit an Estate Planning Attorney to get professional help, and create a plan that well suits your goals.

At The Law Offices of Joel A Harris located in the cities of Concord, Walnut Creek, Antioch, California, we have worked for over 25 years giving the best guidance our clients need to protect their assets. Have a question about your planning your estate? Feel free to schedule a sit-down meeting where we are happy to patiently answer every question you may have. For your free consultation reach out to us at (925) 757-4605.


New Higher Tax on UTMA Accounts – Beware the “Kiddie Tax”

If you’re not familiar with an UGMA or UTMA account, they are accounts that make it simple to transfer property to your children. The Kiddie Tax applies to the net unearned income of a child, regardless of the source of the property that generates the income. Unearned income is income that is not attributable to earned income, which generally includes wages, salaries, professional fees, and other amounts received for personal services rendered. The child must be under the age of 19 or a full-time student under the age of 24. Additionally, the unearned income of the child must be over $2,100, Bloomberg BNA.

Are You Asking Yourself “How will the revamped Kiddie Tax rules hurt my child’s unearned income (savings)?”

  • Learning the New Law

In 2017 a newly implemented Tax Cuts and Jobs Act drastically changed the way children get taxed on their unearned income. As of 2018 through 2025, the TCJA revises the kiddie tax rules to tax a portion of a child’s net unearned income at the rates paid by trusts and estates. Forbes points out that the kiddie tax changes can actually hit families of modest means–where the parents’ tax bracket is lower –the hardest. These tax rates can be as high as 37% for ordinary income or, for long-term capital gains and qualified dividends, as high as 20%, according to Concannon Miller. These new rules prevent parents and grandparents in high tax brackets from shifting income (especially from investments) to children in lower tax brackets.

  • Changing the Way you Gift Money

Although these new rules have been implemented, there’s still ways of minimizing your tax rates. According to Forbes, you should – Name children or older, already launched grandkids as the beneficiaries of your traditional pre tax IRAs–the kind whose distributions are taxable. Young grandkids can still be beneficiaries of Roth IRAs–the ones funded with after tax dollars, whose distributions aren’t taxable. Don’t have any Roths? The new lower individual income tax brackets give retirees more room for low-tax-cost Roth conversions. If your main goal is paying for your grandkids’ education, fund 529 college savings plans now.

  • Helping Your Children

In addition, you can still gift modest amounts of low-basis stock to UTMA accounts (custodial accounts for kids ). On the first $14,800 in qualified dividends and long-term gains, the kids will owe just $1,515, an effective 10% rate. For 2018, a parent can take advantage of the annual federal gift tax exclusion to move up to $15,000 into a custodial account for each of his or her children (up from $14,000 in 2017). If the parent is married, so can the spouse. Parents can do the same thing year after year. Gifts up to the $15,000 annual limit will not reduce the parent’s unified federal gift and estate tax exemption. A minor child’s custodial account must be established under the applicable state Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), Cantrell & Cantrell.

Are You Ready To Assure Your Child/Grandchild Receives the Most Out of Their Inheritance?

Inheriting money is always a great way to help your loved one, but making sure they receive the most out of that inheritance is sometimes tricky. At  The Law Offices of Joel A Harris, we offer the best guidance for minimizing the tax rate applied towards your loved one’s inheritance, catered to your individual needs. Throughout the process, we explain everything and patiently answer every question you may have. Since 1993, The Law Offices of Joel A Harris has worked tirelessly to assure individuals create the most beneficial inheritance towards their child/grandchild. We want the best for your children too! Feel free to reach out to us at (925)757-4605.