My father recently gave me a picture of my grandfather with a golf iron in his hand hitting a loaf of Weber’s Bread. It was 1975, and he was retiring after 26 years of employment with Weber Bread in Southern California and prior with Colonial Bread in Arkansas. Papa lived another 28 years on a modest retirement income until he passed away at the age of 91. He was able to live comfortably, care for himself, enjoy his two sons and his six grandchildren, and regularly enjoyed prime seats behind home plate cheering on the California Angels!
While my Papa was one of my favorites and a constant in my life, I am not sure I would have ever pondered the financial state of his retirement had it not been for the recent passage of the SECURE Act. Undoubtedly, you have seen information regarding the Setting Every Community Up for Retirement Act that President Trump signed into law on December 20, 2019. While there is disagreement in the financial planning world on just how much impact this law will have on the average American, I believe three major points are worthy of mention.
If you are under age 59 ½ and have an IRA and plan on having or adopting a child, you can withdraw up to $5,000 without the 10% penalty. I have friends who have adopted children and I know access to those funds at this joyous time would be a blessing.
Next, if you had reached 70 ½ prior to December 31, 2019, you can continue to use your Required Minimum Distribution (RMD) for charitable giving without claiming the withdrawal as income. If you were going to be 70 ½ after December 31 and were planning on being able to maximize your giving with this strategy, you will now have to wait until you are 72. If you are not familiar with the strategy, you should be, call our office and we will gladly educate you on the steps and assist in the facilitation of your giving to one or more ministries.
Lastly, if your IRA is part of your legacy giving, please pause. There are a lot of statistics that show Americans are underfunded in their retirement. That may not be you, and I hope it isn’t. If you are planning on leaving an IRA to a non-spouse beneficiary, a child, the new law will require the child to withdraw the entire balance within ten years. While, that may seem like a reasonable amount of time, let’s look at the impact.
If your adult child is in their 60’s, maybe in the highest earning years of their career, then they have ten years to withdraw the funds. If you have a $500,000 IRA, then they need to take $50,000 a year. That may become a significant tax impact to them. Now, if you and your spouse, if applicable, were to pass away suddenly, say with a child who is 30 and what we sometimes refer to as an IAC (irresponsible adult child), if they don’t take it all at once, it could be gone in ten years and likely nothing to show for it.
While there are many scenarios that you can plan for, there are some you cannot. What you can do is be educated about all of the options. The Missouri Baptist Foundation seeks to assist with possibility planning for many stages and scenarios. Your adult children may be well disciplined with their finances, I know many who are not. So, the thought of leaving a $1,000,000 IRA to an IAC, leaves me breathless. Good news though, with the proper planning there are arrangements you can set in place now that would allow you to leave your IRA to your children for their life, or a term of years, with the remainder to the charity of your choice.
If you would like to discuss this or other estate planning options, please contact our office. The Missouri Baptist Foundation will review your estate plan free of charge. It is the mission of MBF that every Missouri Baptist have an estate plan that leaves a contribution to a Gospel advancing ministry!