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Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine
ABOUT Alan

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Saving for retirement can be a bit of a three-ringed circus but Joe Anderson, CFP®, and Big Al Clopine, CPA have your ticket to the show! Whether you’re retired, saving for retirement, in the military, or paying off student loans, SECURE 2.0 is a massive shift in investment policy, designed to motivate and enable people to save more for retirement to the tune of $40 billion in new savings plans over the next decade – not to mention reshaping 401(k)s and RMDs. What does that mean for you – it’s all under the big top in today’s show!

Download the Guide to the SECURE 2 Circus

SECURE 2.0 Circus

  • Big Top Benefits
  • Inheritance Gymnastics
  • Show Time

Important Points:

    • 0:00 – Intro
    • 1:16 – Secure 2.0 Circus
    • 2:50 – 401(k) Changes
    • 5:07 – RMD Changes
    • 6:43 – Emergency Savings Plan
    • 7:00 – Qualified Charitable Distributions
    • 7:43 – 529 Plans
    • 9:14 – Student Loan Match Program
    • 9:43 – Download Guide: SECURE 2.0 Circus
    • 10:30 – True/False: If you inherit an IRA from your father, you can stretch the withdrawals over your lifetime
    • 11:23 – Beneficiary Eligibility
    • 13:47 – 10-Year Rule Options
    • 14:51 – Spousal Beneficiary Option
    • 15:45 – Download Guide: SECURE 2.0 Circus
    • 16:25 – True/False: You can avoid claiming some income for tax purposes by making distributions from an IRA directly to a charity.
    • 16:55 – Qualified Charitable Distributions
    • 17:28 – Late saving? Come out on top!
    • 18:55 – Roth Conversions
    • 20:40 – Ask the Experts: I have small children and want to save for education. Should I fund my 529 plan first?
    • 21:47 – Ask the Experts: As a part-time worker do I qualify for my company’s retirement plan.
    • 22:25 – Pure Takeaway
    • 22:42 – Download Guide: SECURE 2.0 Circus

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Transcript: 

Joe: Saving for retirement is like a 3-ring circus. Grab your tickets, folks, and get ready for the show. The show is called Your Money, Your Wealth®, Joe Anderson here, CERTIFIED FINANCIAL PLANNER™, president of Pure Financial Advisors, and, of course, I’m with the big man–Big Al Clopine. He’s sitting right there. You ready for the circus, Al?

Al: Love the circus. Did you like the circus as a kid?

Joe: Not really.

Al: Ha! I’ll tell you what I liked. I liked the elephants, and I liked the cotton candy.

Joe: OK. Well, there’s a lot of elephants and a lot of cotton candy in this show. Let me tell you what. The SECURE 2.0 is now into law, and what happened with this, it’s allowing another $40 billion of us U.S. citizens to save for retirement. Do you know how to get that money into your retirement account? Well, that’s today’s financial focus. 57 million people, almost half of people in the private sector, did not have access to a retirement plan through their employer, almost half. The SECURE Act is helping people now get a head start on retirement or allow them to catch up on retirement. Let’s break everything down. Let’s bring in the big man.

Al: So you have your ticket for the circus, so let’s talk about big-top benefits. There’s a lot of benefits from the SECURE Act 2.0. We want to get into those. We want to talk about inheritance. There are some changes there. Some is review. Some are changes that we want to go over and finally putting it all together so that you can benefit from this new act that was just passed at the end of 2022, and, Joe, it’s a circus out there, right?

Joe: It is. It’s pretty complex, but here’s the– If we want to boil it down really simply, going back to this, 57 million people, half of people in the private sector, didn’t have access to a retirement account, so think about two people. You got Joan and Jill–same career path, same occupation, same income, right? Jill has a 401(k) plan through her employer. Joan does not. You fast-forward 20 years, who do you think has more money saved for retirement? Of course it’s Jill because she has a plan. It is very easy to check a box and put money into a 401(k) plan, out of sight, out of mind. When you don’t have that access to that employer plan, you got to open up an IRA, and then you got to write a check to the custodian and things like that where it’s a lot more work, right?

Al: It is a lot more work, and, because of that–you’re absolutely right–people that have employer retirement plans usually end up with a lot more money in retirement, but let’s go over some of the changes for 401(k)s as they relate to the SECURE Act 2.0. First of all, they’ve expanded the number of part-time people that can actually qualify for a plan. Couple years, they’re gonna add the automatic enrollment for new employees. It’s gonna start anywhere between 3% and 10% of your salary. You can opt out if you don’t want to, but most people don’t even think about it, so they’ll end up saving without even realizing it, and then as far as hardships, now you can actually pull out $1,000 a year from your 401(k) if you have a hardship. What’s a hardship? Any unforeseen circumstance, expense, you get to self-certify, Joe. You get to decide what’s a hardship for you, but you just get one a year.

Joe: Got a little sore elbow. Catch-up contributions, all right, so now we’re gonna be able to put a little bit more away in that piggy bank–6,500 for 50-plus starting 2021, then 2023 here, jumped it up to $7,500, and then in 2025, there’s this 3- or 4-year catch-up that you could put $10,000, so age 60 to 63, so you can start putting and banking a lot more money because people are behind a little bit, and when you get older in life, you’re probably in your peak earning years, and it’s allowing us to put more money pretax or after tax, depending on what your plan is or strategy is, to get more money into these retirement accounts.

Al: Yeah, and interesting, Joe, on these catch-up contributions, now they have to go into a Roth IRA–or a Roth 401(k)–sorry–I should say, if you make more that $145,000, so before, you could pick. You could do Roth if your plan had it or regular 401(k). Now it has to be a Roth contribution for the catch-ups if you make over that 145,000.

Joe: Yeah. It’s crazy, so when you look at this, right, where’s this going? Where are retirement plans going? We talked about the “Rothification”, right?

Al: Yes.

Joe: We’re pretty big fans of tax-free money, right, and so the government is, too, for the time being, right, because they get their tax money today, and it allows us to continue to have our growth tax-free. This is a huge benefit, right, but it’s probably– The tides will turn at some point.

Al: There will be changes eventually. Let’s talk about required minimum distributions, so it used to be 70 1/2 where you had to take those distributions. Then it became 72. Now it’s 73 until 2033. It actually becomes 75, so what does that mean? That means you got money in IRA, 401(k). You can let it sit in there longer. You don’t have to take it out. You can take it out starting at 59 1/2 without penalty–you do pay taxes on it–but now you can delay that required distribution depending upon when you turn 73 or 75, what year it is.

Joe: This all will benefit a couple of different people– one, people that have IRAs that was still working because you have to take an RMD out of an IRA, even if you’re still working at these older ages. Two is that it’s pushing out the RMD age a little bit longer. For those of you that are using strategy to convert money into a Roth IRA, this will allow you to convert even more dollars before you have that RMD, but keep in mind, most people, Al, spend their RMDs, so this law, I mean, it’s great, but, I mean, it’s not helping the masses.

Al: Well, right. It affects people that have a lot of money in IRAs, and so, you know, that’s helpful. A couple things, so the penalty used to be 50% if you didn’t take the RMD. Now it goes down to 25%, and then it actually then gets changed to 10% if you catch it early enough, and then a big one is, Roth 401(k)s, you used to have to take a required minimum distribution in those, too, even though Roth IRA, you didn’t have to. Now they said, “Forget about it.” There’s no RMDs in a Roth 401(k).

Joe: Another benefit here, we have a emergency savings plan, so company worker’s savings plan. It provides automatic payroll deductions again, all right, so it’s just simple, out of sight, out of mind, right into the savings account. Your employer can match the contributions. It’s not a ton, but it’s $2,500, and the first 4 withdrawals are, you know, penalty- and tax-free, so just another thing to get people to kind of build those emergency funds.

Al: The next one we want to talk about is QCD plans, QCD–qualified charitable distributions. When you’re over 70 1/2, you are allowed to put up to $100,000 per person, so 200,000 for a married couple if you both have IRAs. You can actually send that money directly to charity. That’s a qualified charitable distribution. What this new act said, at least for 2023 only, you could do a one-time $50,000 additional amount to what’s called a split interest, which basically means you’re giving to a charity but you’re getting some money back, like a charitable gift annuity, for example. You’re giving away out of your 401(k) or IRA. You’re not paying taxes on it, but you will receive some kind of income in the future.

Joe: Another one, 529, this is a huge buzz going on, right, so let’s say you have a 529 plan. These are educational plans for kids for higher-education learning, all right, so you put dollars in it, it grows tax-deferred, and then when the kids to go school, you can take the money out for qualified expenses to pay for their tuition or books and room and board and things of that nature tax-free, right, so it was a really good tax-free vehicle, but what was happening is that people had a bunch of balances sitting in these 529 plans, and if you wanted to have access to those plans and did not use them for education, well, then you were penalized and taxed, so there’s a provision here is that, right, anyone can contribute to a 529 plan, right? I could contribute for myself, call myself the beneficiary, but after 15 years after that plan has been established, you could roll some of those old 529-plan dollars into a Roth IRA, so instead of taking the distribution and paying taxes and penalties, you can now move it into a Roth IRA. Hold on. It’s not as great as everyone kind of is making it out to be because the amount that you can roll over into the Roth IRA is the same contribution limit, so $6,000 or $7,000 depending on your age, right? $35,000 is gonna be the max. lifetime, and you need earned income, so if you’re currently retired and do not have earned income, you can’t roll the 529 plan into the Roth, so at first, it sounded great, Al, but then you kind of read the fine print, and it’s like… ? Wah wah ?

Al: Well, there are so many limitations, it’s probably not gonna be that important for most people, but here’s one that could be, and that is student-loan interest, so this is particularly for young people or younger people that have student loans, so what this new law is saying is that if you’re paying off your student loan, if your employer adds this to their 401(k) plan or retirement plan, they can do matching payments into your retirement plan for the student-loan amounts that you’re paying off, so that’s a way to actually pay off your loans and get money into retirement all at the same time.

Joe: Hey, if you need help with this, you know where to go. Go to our website yourmoneyyourwealth.com. We got the SECURE Act 2.0. It’s under our special offer, yourmoneyyourwealth.com. We’ll break everything down for you. That’s our gift to you. We got to take a break. We’ll be back in just a second.

Joe: Welcome back to the show. The show is called Your Money, Your Wealth®, Joe Anderson, Big Al. We’re walking you through the SECURE 2.0. Overall, my humble opinion, right, they say it’s gonna add $40 billion, you know, into retirement accounts. Yeah. That sounds great, but, you know, there’s a lot of fluff in the overall bill. There’s some good things, and, of course, there are some things that, you know, will benefit just a small few, but overall, we’re making trends in the right direction. Let’s see how you did on the true/false.

Al: True or false? You know what? That used to be true, but, Joe, that’s no longer true anymore.

Joe: Yeah. That blew everyone up, right? We had the inherited IRA, which was great because a non-spouse beneficiary could stretch those tax liabilities out over their entire lifetime, right, so if a 30-year-old or a 20-year-old or even a 5-year-old, right, inherited a large IRA, there wasn’t a huge tax liability. With the SECURE Act and then now the SECURE Act 2.0, that’s all changed. They want all of that money depleted out of the overall retirement account in a short period of time, and why do they want to do that? It’s because they want their tax money, so, Al, let’s break down the different types of beneficiaries that there are.

Al: There is the eligible designated, so that would be a spouse and a few other categories which we’ll go into a second. Those people actually can still stretch an IRA so that it does work for them. It’s limited, and that doesn’t qualify unless you’re a spouse. Not a lot of people will qualify. The most common one would be a non-eligible designated, and that now you have to withdraw those funds within 10 years, and then finally, if it’s a non-designated, like a charity or something like that, it has to be withdrawn within 5 years, Joe.

Joe: Yeah, so eligible beneficiary, so the most common, as Al said, surviving spouse, right? They can still continue to stretch those tax liabilities out over their lifetime, but usually what happens with a surviving spouse, so if you’re married, one spouse dies, they could take that existing IRA of the deceased and then just roll it into their own. A lot of people do that, but, depending on the age discrepancy of the spouses, it might make more sense to keep it in the deceased spouse. Other, minor children can stretch and so on, so the non-eligible beneficiaries, right, so this is the kids, the grandkids, nieces, and nephews, so non-spouses and certain some trusts, like a living trust, right, this is where the main universe of beneficiaries fall outside of spouses. This is the 10-year rule. You have to deplete that money out within 10 years, so we’re talking if it’s large retirement accounts, your kids or grandkids or your non-eligible beneficiaries will probably have a lot larger tax bill over that time period, so, again, it gets pretty complex when that person dies on how they have to take the money out. Is it equal payments over 10 years, or can they pick and choose when they want to pull it out? Non-designated, so let’s say if you have a certain trust, right, you want to control the money from the grave or there’s charities involved or things like that–some people screw up their beneficiary designations all the time–this is the 5-year rule, right, so this was the most common. Before the stretch IRA, everything had to come out in 5 years. Then they moved the pendulum over here, and they let us stretch that tax liability out over our lifetimes, and now they’re bringing that pendulum back and saying, “No. Wait a minute. That’s way too good a deal. We want our tax money. Give it to us now.”

Al: Yeah, and it’s pretty confusing because there are so many changes in all these rules, but let’s try to summarize it with this diagram, so an individual passes, deceased spouse–that’s the little, red circle–so what can happen? It can be rolled over to the spouse, right? Surviving spouse gets it. When he or she passes, then it goes over to the children– that’s an inherited IRA–or it could go directly from the deceased person to the kids. That’s also an inherited IRA. That’s what we’re talking about. That’s the 10-year withdrawal, and there was a lot of confusion, Joe, at the beginning because it seemed like you could wait till the tenth year, but now with new clarity, you’ve got to take some each year.

Joe: Yeah. If the deceased person passed their RBD date, right, then you have to follow their–

Al: Oh, boy, now we’re gonna go deep, right?

Joe: Yeah. All you got to know, the surviving spouses has a lot more choices, so if you are married and you have a spouse and they decease, you can move it into your own. You can give it to the kids, but here, this is not–this doesn’t apply to the 10-year or 5-year rule, so in 2024, things change a little bit so then there’s better features for the deceased spouse, so the deceased spouse could keep it in the deceased’s name, right, and so then they would be eligible, and they wouldn’t have to take the RMD until the deceased spouse would have turned their required beginning date, either 73 or 75, depending on what year they were born, so now they’re using the lifetime table, which basically is, they’re shrinking the RMD for the surviving spouse, so there’s some added benefit here. Also, if the surviving spouse passes, OK, and then goes to the kids, here we said, all right, this is the 10-year option, not necessarily anymore. They could potentially stretch that.

Al: Well, yeah. They can, and so just realize, maybe the takeaway is, now with the surviving spouse, there’s actually 3 different choices, and you want to review with your advisor when that time comes, hopefully a long time from now, what’s gonna be the best for you.

Joe: Great answer, Al. Use your tax advisor…

Al: Ha ha ha!

Joe: or you could go to yourmoneyyourwealth.com, and you can click on that special offer. It’s our SECURE Act 2.0 guide. Go to yourmoneyyourwealth.com. Click on the special offer. You can download it right there. You can get the rules, the regs., the details, the fine print, all of that good stuff. Yourmoneyyourwealth.com. Click on that special offer. All right. We got to take another break. We’ll be back in just a second.

Joe: All right. Welcome back to the circus, folks. It is showtime, but before we get to Act One, let’s see how you did on the true/false.

Al: True or false? Well, that’s true as long as you qualify, so to qualify, you have to have an IRA, and you have to be over 70 1/2, but then you can actually distribute directly from the IRA to charity. You will not pay tax on that. You will not get a charitable deduction, either, but, most importantly, you won’t pay tax on the income. It’s a great tool for people that are charitable that want to give out of there IRA that don’t necessarily need the income.

Joe: All right. Let’s talk about growing your wealth with all of these new plans, right, and all these contribution– catch-up contribution, new limitations here, so let’s say we have our good friend A.A. Ron. He’s 58 years old, and he hasn’t saved anything, OK, so he wants to have a good retirement, and he’s willing to work until age 70, so he’s gonna buckle up and say, “I’m gonna max. out the 401(k), so that’s $22,500, so the catch-up between age 58 and 59–$7,500, so over that time period, that’s 60,000, or $30,000 a year, that A.A. Ron is going to save inside his 401(k) plan, and then now from age 60 to 63, that catch-up goes to $7,500 to 10,000, so he can add a lot more money, so from 60 to 63, he puts in another $130,000 over that 4-year period, and then from age 64 to 70, he’s still putting in 22.5, and then it goes back to the catch-up, so now he puts in another 210,000. Let’s assume a 6% growth rate. He retires at age 70 with over $600,000, so it’s never too late to start, right, so if you’re in you’re 50s and don’t have a dime, it’s OK. These catch-up contributions is a huge component that can really make a lot of wealth long term.

Al: Well, it is, and that is a common question we get, is, “You know what? I’m 50, I’m 60. I really got very little in retirement savings or almost none,” and this shows now with these new catch-up provisions that with the SECURE Act 2.0, how this can change. Now, I know this is putting a lot of money in, so you have to figure how to do that–easier said than done– but now you’re able to do it, and if you really have nothing saved at age 58, you’re gonna have to do something, so now you’ve got some ways to do it.

Joe: All right. We’re not clowning around here anymore. Let’s talk about Roth conversions. Cool thing about Roth conversions, right, eliminated RMDs, so when you look at Roth IRAs or Roth 401(k)s, Roth 401(k)s had a required distribution. It made no sense, so it was like, OK, well, then they thought, “Well, maybe they’re gonna start creating RMDs for Roth IRAs.” They wanted to get that tax-free growth out of the Roth IRAs. They did the exact opposite, so now the 401(k) does not have a required minimum distribution. The Roth IRA does not have a required minimum distribution, so you can continue to parlay tax-free compounding over your lifetime. If you don’t necessarily need the money, it’s a great wealth-transfer tool. It could lower your overall taxes when you look at tax diversification, making sure that you have different dollars in different types of tax pools, you know, and then, of course, it’s tax-free withdrawals to the beneficiaries. We talked about that stretch is no longer. They have to pull out in 10 years. Well, it’ll be easier to pull out 10 years if there’s no taxes on those dollars.

Al: Yeah, no question, and so, just to be clear, getting money into a Roth IRA or a Roth 401(k), so the contribution, that’s tax-free when you pull it out. The growth and income is tax-free when you pull it out. If you pass away, goes to your spouse or your kids tax-free or whatever your beneficiaries are tax-free, so you think about this. If you can get more money into a Roth IRA or Roth 401(k), have that compounded, now you don’t have to do the required minimum distributions out of your Roth 401(k). You can compound that much longer. Now you’ve got more money for retirement. You’ve also got more money tax-free for your beneficiaries.

Joe: All right. Let’s switch gears. Let’s go to “Ask the Experts.”

Al: From Kate. Kate, well, 529 plan, of course, is for kids’ education, best when they’re young, right, because you get the money in, it can compound growth over, you know, perhaps 18 years or whatever the time frame may be. Yeah, sooner as later. I guess if you’re asking, “Should I do this first before a retirement account?” you know, it’s, both are very important. I personally would probably want to do some of each, but what do you think, Joe?

Joe: Well, you can always take a loan for education. You can’t take a loan for your retirement, you know, so you want to make sure that you’re secure for your overall retirement, you know, so you don’t want to bank everything for education and have zero for retirement, so, I mean, I think that’s where planning and strategy comes into play, but now if you go into the 529 plan, you can potentially move that into a retirement account, so there’s some different thought process there, but my humble opinion, right, I think you got to take care of yourself first and then make sure that, you know, you have a strategy long term.

Al: Second one is from Robyn. Well, Robyn, some good news, so with this SECURE 2.0, it makes it easier for a part-time person to qualify. Now it’s, I think, in 2024, you have to work 500 hours for two consecutive years, but then you qualify. It used to be you had to work 1,000 hours in every single year, so that rule has changed, helping a lot of part-time people that didn’t get benefits before.

Joe: Let’s wrap this thing up. Let’s put a bow on the big top here. We talked about a lot of benefits, $40 billion, right, that we look at that could get funded into retirement accounts over the next several years. We talked about RMD age, 401(k) access, catch-ups, inheritances, and then the QCDs if you want to look at giving. If you want more information, go to our website yourmoneyyourwealth.com. Click on that special offer. It’s our guide to the SECURE 2.0. Hopefully, you enjoyed the show. For Big Al Clopine, I’m Joe Anderson, and we will see you next time.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

CFP® – The CERTIFIED FINANCIAL PLANNER™ certification is by the Certified Financial Planner Board of Standards, Inc. To attain the right to use the CFP® designation, an individual must satisfactorily fulfill education, experience, and ethics requirements as well as pass a comprehensive exam. Thirty hours of continuing education is required every two years to maintain the designation.

AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.

CPA – Certified Public Accountant is a license set by the American Institute of Certified Public Accountants and administered by the National Association of State Boards of Accountancy. Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically, the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional one-year study. All CPA candidates must pass the Uniform CPA Examination to qualify for a CPA certificate and license (i.e., permit to practice) to practice public accounting. CPAs are required to take continuing education courses to renew their license, and most states require CPAs to complete an ethics course during every renewal period.