Many baby boomers are retired or getting ready to retire. Many are in good health and are looking forward to not having to work. Their children are often grown, educated and on their own. Many boomers have a modest pension and Social Security for income and will have to make decisions regarding their IRA and 401(k) rollovers. Some financial planners say that they can handle everything by themselves and that the client does not need an attorney. I disagree.
A recent law change called The Setting Every Community Up for Retire Enhancement (SECURE) Act, makes major changes to retirement plan rules, including inherited plans.
Passed in December 2019, the SECURE Act changes the law surrounding retirement plans in several ways, but the biggest change eliminates “stretch” IRAs. Under the previous law, if you named anyone other than a spouse as the beneficiary of your IRA (or other tax-favored retirement accounts, such as a 401(k)), that beneficiary could choose to take over his or her lifetime and pass what was left onto future generations – called the “stretch” option.
The required minimum distributions were calculated based on the beneficiary’s life expectancy. This allowed the money to grow tax-deferred over the course of the beneficiary’s life and to be passed on to his or her own beneficiaries.
With the new SECURE Act in place, starting your retirement is a good time to have a legal check-up regarding the appropriateness of all of your legal documents. Retirement is a significant change in your life and with all significant changes, your legal plan should be reviewed. Retirement planning is so much more than calculating how much interest your investments can generate in your retirement years. Proper retirement planning is a strategic plan that takes into consideration the many challenges you could face in this new chapter of your life.
You should have an elder law estate planning attorney review all of your financial, legal and retirement plans. All estate plans should include, at a minimum, two important documents: a durable power of attorney and a will. The first is for managing your property during your life, in case you are ever unable to do so yourself. Even if you do not want any changes made to your power of attorney, and even if the Power of Attorney is supposed to be “durable,” many times our clients will find that banks will only accept a “recent” document and “recent” is defined differently by different banks. The second document, a will or trust, is for the management and distribution of your property after death. Your will may not need to be updated, however, there may be significant changes to the law that may impact your retirement plan.
There are some aspects of retirement planning that are often overlooked by financial planners; specifically, most often the long-term care planning component of your retirement. You could have a properly drafted financial plan, but if you or your spouse is paying $18,000 per month to a nursing home, it can decimate the best-laid plans. There are also significant tax and income strategies that have legal ramifications to both you and your spouse. When you move from the earning years of your life to the income years of your life, significant planning must occur. Finally, it often helps to have a disinterested third-party review what your plan comprises.