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What Does the SECURE Act Mean for Annuities and Your 401(k)?

Your retirement plans require review and tweaking from time to time. Sometimes, you need to take a step back and review because of life changes on your end. Other times, outside factors, like changing retirement legislation require your attention.

If you’ve been following the news, you’ve probably heard about the SECURE Act. This is a proposed retirement reform that’s poised to be signed into law and will have an impact on some of your retirement planning activities, should it become law.

While there are a few main areas where the SECURE Act will make a difference in your retirement planning, one big component of this reform is how it’ll impact annuities and 401(k) planning. If you’re curious about how this could change your retirement portfolio or open new investment opportunities, read on to see how you may be able to anticipate the effects of this reform.

Annuities and the 401(k) Mix

Currently, many 401(k) providers don’t add annuities to their plans because annuities are considered a riskier investment and place an unwelcome amount of liability in the provider’s hands. Annuity payouts can fail to materialize, which hurts the investors relying on them as part of their retirement package. Under current laws, plan providers have the fiduciary responsibility to cover the loss of an annuity, which makes them an unpopular part of the 401(k) mix.

Under certain provisions of the SECURE Act, the responsibility for a failed annuity shifts from the retirement plan provider to the insurance company that offers the annuity. With this shift in liability, we may see more annuities pop up in different retirement packages.

What are the Prospective Benefits to Investors?

If you’re looking to add new investments to your retirement portfolio or are investing for the first time, you probably want to know: what’s in it for me?

Annuities can be an option for investors looking for a long-term plan to payout over a certain period of time. Investors who don’t have a whole lot set away in retirement accounts may enjoy the prospect of reliable monthly income, especially if they don’t have other investments that may provide a similar payout.

What are Some Potential Problems to Look For?

As an investor, you want to be aware of the investments that comprise any retirement package that you invest in. If your employer offers annuities as part of your investment options, you should be able to trust that they are worthy of your consideration. However, there is a certain risk that employers will not have the insight to provide annuity options that are particularly beneficial for you as an investor.

There’s also a likelihood that annuities as part of the 401(k) mix will incur extra fees on the investor’s end, as annuity plans tend to come with certain expenses that are often passed onto the consumer. Additionally, as part of the 401(k) mix, annuities may add more limitations to the amount of money you can draw from your retirement account or the age at which you can take these withdrawals.

Have You Reviewed Your Retirement Plan?

An essential factor in choosing your retirement portfolio mix is understanding your options and making decisions that are best suited to meeting your future financial goals. There’s never a bad time to review your existing retirement plan to monitor its performance and change your investment mix, if necessary.

If you’re new to retirement planning and want to learn more about how to invest for your long-term financial planning, contact Jacob Sturgill Financial today for a consultation!

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

6 Ways that the SECURE Act Might Impact Your Retirement Planning

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) is a major federal retirement reform measure. This bill puts forth a series of revisions to previous laws governing taxes on retirement income, collection ages, and more.

While it’s not law yet, there is a lot of talk about how the SECURE Act impacts retirement planning for the average American. Investors want to know how this is going to make a difference to their portfolios, present and future. After all, there are a lot of ways in which new regulations can change existing plans for better or worse.

There are dozens of measures included in the SECURE Act, some more significant than others. Here are the ones that are most likely to make a difference to your retirement planning activities or existing portfolio.

1. Provides More Opportunities for Small Businesses to Offer Retirement Plans

Under the SECURE Act, there are more opportunities than ever for small businesses to opt into retirement planning for their employees. This bill has provisions to extend previously unreachable 401(k) sharing options for small businesses by allowing multiple small businesses to work together as a larger group and pool contributions into bigger funds. This would, in effect, give employees of small businesses retirement planning options on par with what they would see if they worked for a larger employer, provided that the owner(s) of the small business join a 401(k) pool.

Until now, small businesses have been limited in their ability to provide a variety of retirement planning options for employees, which can impact a small business’s ability to attract and retain talented employees. Options like SIMPLE IRA and SEP IRA, while adequate, don’t have the same luster as 401(k) options. As a result, many small businesses simply don’t offer retirement plans for their employees. Opening 401(k) options for small businesses can provide value for small business owners and confidence for employees at these companies.

2. Removes Age Limitations for IRA Contributions

Another impact that the SECURE Act would have is the removal of age limitations for IRA contributions. Currently, there is an age limit on IRA contribution that limits individuals over age 70.5 from contributing to IRAs. This seemingly discourages retirement savings for individuals who are approaching or past the traditional retirement age.

Removing the age limitation for IRA contributions will encourage continued IRA contribution, even into one’s 70s and beyond. Interestingly, there is already no age limit for contributions to Roth IRA accounts, so this would bring more balance for investors on the fence about IRA conversion.

3. Add Opportunities for Annuities within Retirement Plans

Provisions in the SECURE Act would provide the opportunity for 401(k) plan providers to add annuities to the 401(k) mix, further diversifying investment options for those who invest in these plans. Until now, there has been hesitation on the part of providers to add annuity options, since annuities have presented a certain level of liability when packaged as part of a 401(k) plan. However, the SECURE Act provisions remove this liability from the provider’s side, which may open more options to add annuities to the 401(k) mix.

4. Extends the Required Minimum Distribution Age

By law, you’re required to take a required minimum distribution (RMD) from certain retirement accounts by the time you reach age 70.5. Some investors don’t appreciate the constriction of this requirement, especially if they’re still working at age 70.5 or don’t plan to fully rely on their retirement savings until a later date.

Under the SECURE Act, investors will see the RMD age moved from age 70.5 to age 72. This provides a cushion for investors to add a final push of savings to their retirement accounts. Of course, if you plan on drawing from those accounts earlier than age 72, you’ll still have the option to do so.

5. Provides Penalty-Free Distribution for Certain Withdrawals

Generally, investors shy away from taking pre-retirement withdrawals from their retirement accounts because of the rate at which those withdrawals are taxed. But in some life circumstances, the future nest egg is a valuable tool that could provide some much needed relief in the short-term.

The SECURE Act, in part, seeks to answer the challenge of accessing retirement funds for certain life changes by removing the penalties associated with these withdrawals. Most notably, the SECURE Act has a provision that allows investors to take qualified withdrawals for the birth or adoption of a child. It opens up to $5,000 in penalty-free withdrawals for a qualified birth or adoption within one year of the child’s birth- or adoption-date.

6. Removes Certain Qualifications from Inherited Accounts

Inherited retirement accounts (401(k)s, IRAs, Roth IRAs) have, in the past, provided beneficiaries with the ability to withdraw funds over the course of their lifetimes. However, under provisions in the SECURE Act, these distributions would be limited to a ten year period.

While this doesn’t necessarily make a big impact for smaller inherited accounts, like 401(k)s, since they’re typically liquidated within a short period of time, it does make a difference for investors collecting so-called “stretch” benefits from inherited IRAs. In a technical sense, IRAs are not strictly retirement accounts. The rationale of the SECURE Act’s limitations is to reduce the length of time that beneficiaries can receive penalty-free inherited IRA distributions and infuse a certain amount of tax money back into the economy, by bringing back penalties for distributions taken outside of the designated decade.

So, How Might the SECURE Act Impact Your Retirement Planning

As an investor, you want the confidence that your investments are working hard for you and will one day, hopefully, help you to reach your future financial goals. With a big piece of legislation, such as the SECURE Act, on the table, there are ways in which today’s planning may not be sufficient for reaching tomorrow’s goals.

Instead of trying to work through this on your own, look to your financial advisor for information about how retirement reform might impact your bottom line. Your advisor can help you to sift through new requirements, evaluate your current accounts, and make adjustments that align you with the track you want to take.

If you have any questions about the SECURE Act or want to learn more about your retirement planning options, contact Puckett & Sturgill Financial Group today for a consultation!

Ask Aaron: Are Annuities Bad?

When it comes to researching your investment options, you’ll find a plethora of choices and lots of chatter about what the “best” investment options are. Among this chatter, you’ll no doubt hear the amazing benefits of annuities as investments. You may be thinking: “are annuities a good investment for me?

On the other side of the spectrum, you might have friends or family members who have had poor experiences with investments in annuities and are quick to tell anyone who will listen. Their stories aren’t unique, as sadly there are many investors who have been hurt by overzealous salespeople, disadvantageous contract terms or a lack of understanding of what is one of the most complex investment products available.

So which is it? Are annuities bad? Or are they all they’re cracked up to be?

Let’s take a deeper look…

What is an Annuity?

First things first, let’s look at what an annuity is. An annuity is an agreement between an insurance company and an investor that includes a stream of regular payments. However, all annuities are not created equal, and it’s imperative to make investment decisions with your eyes wide open before you ever sign on the dotted line.

Who Offers Annuities?

Annuities are investment contracts offered by insurance companies. Insurance companies are able to offer certain guarantees that other financial institutions might not be able to offer such as death benefits, income benefits, or crediting benefits, also called riders.

On the outside, this seems like an appealing proposition. But if you come across an agent who seems to pressure clients toward one type of product or company, you might want to steer clear. Someone with a certain product to sell may not have much more in mind than selling as many of those products as possible in order to earn a commission, even though those products may not truly be best for their clients.

Perks of Annuities as an Investment

There are certainly perks to annuities as investments. After all, they’re still a popular investment vehicle for long-term investing.

The biggest perks to investing in annuities are the accompanying tax deferral and other possible guarantees. Many annuities are paid out in consistent, recurring amounts, which is very appealing to individuals looking to set up a consistent stream of income or obtain some type of certainty.

Downsides of Annuities as an Investment

On the flip side, annuities are often not the best investment choice. While they may come with a guaranteed return and other appealing incentives, there are almost always strings attached.

Unseen internal costs or penalties and long surrender schedules can impact your bottom line significantly. Depending upon the specifics of an annuity contract, the payout might not end up as all it’s cracked up to be. And if you’re already committed to an annuity, removing your funds could prove challenging and expensive.

Some Important Things to Remember about Annuities

The most important thing to remember when it comes to annuities is that there is no single financial product that’s best for every investor. For some investors, certain annuities might be an ideal choice. For other investors, those same annuities might be a costly mistake.

And some annuities might be terrible investments, period – even for the most likely candidate. If it sounds too good to be true, it probably is.

Your individual financial situation is an essential driver behind which investments are the best for your portfolio. Instead of a sales pitch, you deserve a personalized recommendation based on an objective review of your specific situation.

At Puckett & Sturgill Financial Group, we take the time to get to know you personally before ever making recommendations for specific financial products. Are you curious about whether annuities are right for you? Reach out and schedule a consultation today!

Disclaimer: Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 1⁄2 are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value. Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. Guarantees are based on the claims paying ability of the issuing insurance company.