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  • 15 May 2020 1:41 PM | Anonymous
    • It was President John F. Kennedy who famously said, “Ask not what your country can do for you, ask what you can do for your country.”

      As the current global health crisis has made clear, the compact between the U.S. government and its citizens works both ways. As the COVID-19 pandemic was thrusting hardship upon individuals, families, communities and businesses across the American and global landscapes, the U.S. government was hastily enacting the CARES (Coronavirus Aid, Relief, and Economic Security) Act in an effort to help its citizens meet the escalating financial challenges they are facing as a result of the unprecedented crisis.

      What exactly can the CARES Act do for individuals, families and businesses? And in situations where you are eligible to take advantage of a CARES Act provision, is doing so a wise move?

      “The first step to determining who should take advantage of new government programs, is to understand what the programs are, and are not,” said FPA member Sean M. Pearson, a CERTIFIED FINANCIAL PLANNER™ professional based in Conshohocken, Pa. “Except for the Economic Impact Payments, the only way to avail yourself is to ask the questions and apply to the appropriate agency or organization.”


      The payments to which Pearson refers are among about $2 trillion worth of financial relief included in the CARES Act. Here, he and other members of FPA offer their insight on those benefits and the best candidates to take advantage of them. For more details, visit the U.S. Treasury Department’s website.

      FOR INDIVIDUALS AND FAMILIES

      Economic Impact Payments: As of mid-April, the Treasury Dept. had begun issuing cash payments directly to citizens via check and electronic transfer, although many people aren’t likely to receive their payments until May or perhaps beyond. The payments are based on adjusted gross income (AGI) in the 2019 tax year (or the 2018 tax year for people have yet to file their 2019 federal returns), as detailed in the chart below. Adults are eligible for up to $1,200 ($2,400 per couple), and parents are due to receive $500 per child age 16 or under. No action is required by taxpayers to receive the payments.

      Note: As part of the CARES Act, the U.S. government postponed the 2019 federal income tax filing and payment deadline from April 15 to July 15, 2020. More on the ramifications of that move for taxpayers can be found in a separate article from FPA.

       Filing Status

      Rebate Reduced by 5% of AGI in Excess of

      AGI Level Where Rebate Is Completely Phased Out (for Taxpayers Without Qualifying Children)

       Married Filing Jointly

      $150,000

      $198,000

       Head of Household

      $112,500

      $136,500

       Other Individuals

      $75,000

      $99,000

      (source: T. Rowe Price)

      What the financial pros say: How to put the payments to constructive use? People whose finances have been severely impacted by the pandemic — job loss, deep drop in income, straining their ability to cover basic household expenses — should prioritize covering their basic needs first.

      For people whose cash needs aren’t as urgent, FPA member Scott A. Bishop, CFP®, executive vice president at STA Wealth Management in Houston, TX, suggests keeping that money as part of a cash reserve/emergency fund “until we see with greater clarity where all this is going to go.”

      A strong cash reserve, with enough money in it to cover household expenses for three, six or even nine months to a year, provides critical protection in case of a drop in household income.

      Increased unemployment benefits. An estimated 22 million Americans filed for unemployment benefits during a four-week stretch in March and April 2020. People who collect unemployment benefits in the 2020 calendar year will find those benefits have been enhanced in several ways. For one, eligibility has been expanded to include the self-employed, independent contractors, people with limited work history (those new to the workforce), and people who have been furloughed or are unable to work as a result of the coronavirus. The duration of benefits has been extended to last up to 39 weeks (depending on state laws). And benefit amounts have been increased by $600 per week through July 31, 2020.

      What the financial pros say: If you’re among those eligible for benefits and become unemployed, be sure to file as soon as possible with the state in which you reside. Do so even if you aren’t sure whether you qualify. Use the money to cover your living expenses and necessary bills, and once those are covered, use the remainder to build your cash reserve, suggests Bishop.

      Access to retirement account assets. The CARES Act gives people who have been directly impacted by the coronavirus the ability to access funds in their workplace retirement accounts [such as a 401(k)) and/or IRA via loans or withdrawals. If you, your spouse, or a dependent is diagnosed with COVID-19, or if you have incurred negative financial consequences as a result of the pandemic, you may be eligible to take a retirement account distribution of up to $100,000 without an early withdrawal penalty. Income taxes still will apply to withdrawals from tax-deferred accounts like traditional IRAs, but people can opt to spread those taxes over three tax years. They also can treat the withdrawal as a loan (if the retirement plan in which they are enrolled permits loans); if they repay the loan within three years, they may be eligible for a rebate of any taxes they paid on the withdrawal. This loosening of retirement account rules lasts until September 23, 2020.

      What the financial pros say: As a general rule, financial professionals suggest that people tap their retirement accounts early only as a last resort, to cover necessary expenses. The pandemic certainly has thrust more people into dire financial circumstances. Bishop suggests people continue to treat these withdrawals as a last resort, and if they do tap retirement funds, to use the withdrawals only to cover necessary expenses. If you have the financial means to cover necessary expenses without depleting retirement plan assets, he recommends doing so.


      Relief from RMDs. People who would have been obligated to take required minimum distributions, or RMDs, from their retirement accounts in 2020 won’t have to do so.

      What the financial pros say: If you need the RMD money to cover necessary expenses, take the distribution. If you don’t need the money, or if you need less than what you would otherwise be required to take as an RMD, then you have the flexibility to take less of an RMD, or none at all. You’ll likely pay substantially less in 2020 taxes as result, since RMDs typically are taxed as ordinary income.  As Bishop notes, this added flexibility also provides an opportunity to convert assets in a traditional IRA into a Roth IRA. Be sure to consult a tax and/or financial professional for advice on the merits of such a move, and how to go about executing it. Most financial and tax professionals are working through the COVID-19 crisis and are available by phone, email, video conference, etc. To find a CERTIFIED FINANCIAL PLANNER™ professional in your area, check out FPA’s searchable national database at www.PlannerSearch.org.

      Student loan relief. The CARES Act suspends payments on federal student loans through Sept. 30, 2020, without any interest accruing, an important reprieve for people with student loan debt.

      What the financial pros say: Here’s another instance where people under extreme financial duress can use these funds to cover necessary expenses. People who aren’t under financial duress should consider continuing to make payments, especially if they do not expect the loan balance to ultimately be forgiven.

      Charitable contributions. For the 2020 tax year, people can take a tax deduction for up to $300 for eligible charitable contributions, even if they don’t itemize their deductions. For individuals and businesses who previously itemized their deductions, limits have been raised or suspended so more contributions are deductible this year. These contributions must be made in cash directly to a charitable organization, according to Bishop. Besides aiding taxpayers, these provisions are designed to encourage people to support charitable organizations in need during the crisis. Here’s another instance where it’s important to get guidance from a tax professional.

      What the financial pros say: “If you’re looking to give cash to support an organization, this is a good year to give it,” says Bishop.

      FOR SMALL BUSINESSES

      The CARES Act established the Paycheck Protection Program (PPP) to provide small businesses with loan guarantees and grants to help them hold onto employees and remain viable through the pandemic. Loan amounts can reach up to 2.5 months of a company’s average payroll, and can be used to cover payroll and other expenses like benefits, mortgage, rent and utilities. The loans are available via the U.S. Small Business Administration (SBA; www.sba.gov) through any SBA 7(a) lender or through any federally insured depository institution, federally insured credit union or Farm Credit System institution that is participating. They carry interest rates that are capped at 4%, and may be partially or fully forgiven if the business recipient keeps all its employees on the payroll for eight weeks or more and the money is used for payroll, rent, mortgage interest or utilities. The Paycheck Protection Program is slated to last through June 30, 2020. Note: As of mid-April, PPP funds had been depleted and federal lawmakers were considering measures to replenish the program.

      What the financial pros say: “Business owners and even independent contractors are eligible for the program. It’s a lifeline that can help keep them afloat.”

      FOR EMPLOYERS

      The CARES ACT includes various forms of relief for businesses of all sizes, according to Pearson, including:

    • Allowing businesses to forego payments of the 6.2% Social Security tax in 2020; they can instead make those payments in 2021 and 2022.
    • Increases the ability of companies to deduct net operating losses.
    • Companies can earn workforce retention credits for retaining employees during the public health emergency.
    • Accelerated recovery of alternative minimum tax (AMT) credits.
    • Giving employers an enhanced ability to deduct business interest expenses.

    With the COVID-19 crisis still raging throughout the United States, and economic conditions worsening as a result, there may be more help forthcoming from Uncle Sam in the months ahead.

    May 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

  • 15 May 2020 1:28 PM | Anonymous

    The pandemic-stricken American public had reason to emit a deep sigh of relief this spring after the U.S. Treasury Department announced a timely — and in many cases urgently needed — postponement of the deadline for filing 2019 federal income tax returns.

    As part of the CARES ACT enacted in late March to provide individuals, families and businesses with emergency financial relief, the U.S. government postponed the 2019 federal income tax filing and payment deadline from April 15 to July 15, 2020.  As welcome as the extension is for taxpayers, particularly those experiencing a high level of financial strain as a result of the COVID-19 crisis, there’s more to it than meets the eye — and, perhaps, more benefits to be reaped by people who understand some of the steps they can make to take full advantage of it.

    First, there are the obvious benefits. “The filing [extension], and more importantly, the payment extension, is an opportunity to keep more cash on hand during these difficult times,” says FPA member Marianela Collado, a CERTIFIED FINANCIAL PLANNER™ professional with Tobias Financial Advisors in Plantation, Fla. Instead of paying whatever additional income tax they owe by April 15, people can hang onto that cash until July 15, the federal tax filing and payment deadline.

    As she notes, people can still file their federal tax returns electronically and in doing so, specify that any amount they owe be withdrawn on July 15 (or whatever date they prefer before then). “Just be sure you have enough money earmarked to cover that tax payment when it’s due,” advises Collado.

    For people who pay federal taxes on a quarterly basis, the July 15 extension applies to first quarter 2020 estimated taxes. However, second quarter 2020 estimated taxes still are due June 15, 2020.

    On the state tax policy front, all states with an income tax also have extended their filing and payment deadlines, in most cases to align with the federal extension, with a handful of exceptions. To access a comprehensive listing of state extension dates, visit the American Institute of Certified Public Accountants COVID-19 resource page.

    Another potential benefit of the filing extension comes in the context of the Economic Impact Payments included in the CARES Act. These so-called stimulus payments are based on an individual’s or a couple’s adjusted gross income (AGI) for the most recent tax year in which they filed tax returns — either 2019 or 2018. If the AGI was lower for an individual or couple in 2018 than in 2019, it could behoove them to wait to file their 2019 returns, so the Treasury Dept. uses their 2018 AGI figure to determine the amount of their Economic Income Payment. The lower AGI figure could in turn make them eligible for a higher stimulus payment. Before deciding on a course of action, it’s a good idea to consult a tax and/or financial professional for guidance. Most financial and tax professionals are working through the COVID-19 crisis and are available by phone, email, video conference, etc. To find a CERTIFIED FINANCIAL PLANNER™ professional in your area, check out FPA’s searchable national database at www.PlannerSearch.org.

    People who expect to receive a tax refund for the 2019 tax year should file their 2019 returns “sooner rather than later” so they can get their refund quicker, says FPA member Sean M. Pearson, CFP® based in Conshohocken, Pa.

    The only instance in which “the sooner, the better” rule of thumb for people expecting a tax refund may not apply has to do with Economic Income Payment eligibility. If, by delaying filing their 2019 tax returns, a taxpayer stands to reap a higher Economic Income Payment (because that payment would then be based on their 2018 AGI), and the difference in the amount of their potential Economic Income Payment is more than the refund they would get via their 2019 returns, Collado explains, then it would make sense to wait until the Economic Income Payment arrives before filing 2019 returns. That way, they could potentially get a higher Economic Income Payment based on their lower 2018 AGI, and are still in line for a refund from their 2019 returns, once those are filed. Here’s another instance where it’s wise to consult a tax professional for guidance.

    In extending the federal tax filing and payment deadline for the 2019 tax year from April 15 to July 15, Uncle Sam likewise extended the window during which people can make 2019 contributions to IRAs, Roth IRAs, health savings accounts, Solo 401(k)s, SEP IRAs and the like. “This is a great thing,” says Collado, “because it gives people more time to assess their cash situation and figure out whether they can in fact make that extra HSA contribution or IRA contribution. It gives people a chance to get a clearer picture of where they stand, and an opportunity to still move the needle on their 2019 tax returns.”

    For example, if, come June or early July, a person or a couple takes stock of their cash situation and (preferably with guidance from a financial professional) determines they have the financial wherewithal to increase their contribution to an HSA, IRA, 401(k) or some other tax-favored vehicle, the extension provides them the extra time to make that determination and execute that maneuver, says Collado. “Some of these contributions affect the prior-year tax bills, so having more time for hindsight is an incredible opportunity.”

    May 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.


  • 7 Apr 2020 2:54 PM | Anonymous
    • Suddenly a big “What if?” has become a big “What now?” Not only has the longest economic expansions in recent American history come to an abrupt end as a result of the COVID-19 (coronavirus) pandemic, economies around the world have slowed significantly as people stay home and businesses close to weather a global health crisis the likes of which hasn’t been seen in at least a century.

      The unprecedented scope, suddenness and seriousness of the coronavirus crisis leaves us to navigate uncharted territory in virtually every aspect of our lives. For obvious reasons, some of the most pressing questions people have relate to their financial lives. What does all this mean for me financially? is a common one; What should — and shouldn’t — I be doing now to protect and position my assets going forward? is another.

      The first step is to resist the urge to let emotions dictate how you manage your money and assets in the face of an economic downturn. “The bottom line, for any risks in life you need to address, you should have a plan – don’t react. Once a…recession is upon us, many will react on fear which typically ends in a less than optimal solution,” FPA member and CERTIFIED FINANCIAL PLANNER™ professional Scott A. Bishop writes in a blog post on his firm’s web site.

      One silver lining to the disruption created by quarantine, sheltering in place and social distancing is that it creates plenty of downtime to think through the steps you need to take to put yourself, your household finances and your assets in the best possible position in light of the economic realities we’re already facing and are likely to face in the near future, then to actually take action. Here are some suggested action steps from CERTIFIED FINANCIAL PLANNER™ professional members of the Financial Planning Association® (FPA®):

      1. Maintain perspective. As painful as they can be, stock market downturns and recessions are temporary. By definition, a recession is at least two consecutive quarters of economic decline. We’re not there yet. But if the economy does in fact drop into recession, it’s vital to keep in mind that if history provides any precedent, it shouldn’t last as long as expansions tend to. Since 1900, the average recession has lasted 15 months and the average expansion has lasted 48 months, according to an article from acorns.com.

      2. Don’t vacate your investment positions if at all possible. Selling investments when their value is down should be viewed as an absolute last resort. History suggests that the value of your investments will rebound sooner rather than later. So unless there’s no other option to create cash flow to make ends meet, exercise patience. That holds true for stock portfolios, retirement accounts — pretty much any investment vehicle linked to the performance of the stock market.

      3. Be budget-conscious. If you don’t have one already, draw up a household spending plan or budget. You’ll immediately gain clarity about areas where you can reduce spending.

      4. Prioritize reducing debt. When household budgets tighten, paying large amounts of interest on credit card balances, for example, can add additional financial strain. So make a concerted effort to pay down debt. Because the pandemic is forcing many people to stay home and not spend as much money for discretionary reasons, expenditures may decrease. How about using those savings to pay down credit card balances or to pay a little extra on your mortgage or student loans, for example?

      Cover larger unexpected expenses from your emergency cash reserve if possible, rather than assuming additional credit card debt. An emergency fund serves as a protective buffer against the fallout of an economic downturn. If you have the financial wherewithal, continue contributing to that cash reserve. And if you don’t currently have one, now is a good time to set up a stand-alone savings account for those funds to reside.

      5. If you got laid off from your job, know what you are owed in terms of:

      • final paycheck
      • vacation time
      • severance pay
      • commissions

    If you’re not clear about any one of these, check out the organization’s employee handbook (if it has one) or speak directly with someone who handles HR issues at the organization. Also find out when and how you will get important tax documents: W-2’s, 1099s, K-1’s, etc. Be sure you have any documents related to the company’s retirement and investment plans in which you may have been involved, including stock options, 401(k), profit sharing, pension, etc.

    It’s also critical to know your rights related to benefits, including health Insurance, COBRA and/or Medicare, as well as unemployment insurance and other potentially portable benefits such as life and disability insurance.

    6. Take advantage of opportunities to dollar-cost average. One step investors can take to blunt the impact of drops in the value of their retirement accounts, college savings plans and investment portfolios is to continue to invest a fixed amount in those accounts. This maneuver, known as dollar-cost-averaging, essentially enables them to take advantage of a buying opportunity when prices are lower.

    7. Revisit your financial plan with your financial adviser, and if you don’t have a plan already, enlist a financial planner to create one for you. A financial plan should include contingency strategies for when what-ifs like a weakening stock market and economy become reality. Besides providing a script for how a person’s assets will be handled during an economic downturn, a financial plan serves an important role as a compass during challenging economic times.

    Even amid all the virus-related restrictions in place, many financial professionals are on call and available for virtual or phone conversations to help existing as well as new clients. To find a CERTIFIED FINANCIAL PLANNER™ professional in your area, check out FPA’s searchable national database at www.PlannerSearch.org.

    April 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

  • 7 Apr 2020 2:45 PM | Anonymous

    It will forever be remembered as the COVID-19 Crisis of 2020, when the coronavirus pandemic turned an unprecedentedly long bull market into a bear market in the matter of a week.

    The COVID-19 (coronavirus) pandemic brought a halt to a period of sustained stock market and economic growth that dates back to the end of the Great Recession. After 11 years, 13% annualized earnings growth and 16% annualized trough-to-peak appreciation, people with investment assets were reintroduced to a phenomenon they hadn’t experienced in more than a decade: a bear market.

    As unprecedented as the impact of the pandemic has been on virtually every facet of life, the financial ramifications of the crisis were particularly concerning for people because they could be felt, or at least seen, immediately, as stock markets — and peoples’ investment portfolios and retirement accounts — sustained a series of drops in value.

    How to manage your assets amid bear market signals like these? CERTIFIED FINANCIAL PLANNER™ professional members of the Financial Planning Association® (FPA®) offer the following suggestions:

    Resist the urge to let emotions dictate how you manage your money and assets. If the Great Recession and the behavior of the equity markets since then have taught us anything, it is that knee-jerk, emotion-fueled investing and financial decisions made in reaction to a bear market can unnecessarily erase years of solid investment performance and decision-making, hamper a person’s ability to meet long-term life goals and undermine their overall financial health.

    Rather than making asset-management decisions that ultimately run counter to your best financial interests, think and act strategically, in concert with a financial professional you trust. You may need to take some action with your investments as a result of shifting market conditions; that’s a subject to discuss with a financial planner.

    Keep calm, carry on and maintain perspective. Stock market downturns typically don’t last nearly as long as bear markets. According to First Trust Advisors, from 1926 to 2019, the U.S. stock market has experienced eight bear markets (drops of 20% or more in the major market indices) ranging in length from six months to 2.8 years. The average bull market lasted 6.6 years, with an average cumulative total return of 339%. The average bear market lasted 1.3 years with an average cumulative loss of -38%. If history is an accurate guide, we will pull out of the bear market sooner rather than later.

    History suggests that equity markets will recover. An analysis by T. Rowe Price found that from 1928 to 2017, stocks grew annually by an average of 10.2 percent. And that factors in the 25 years during which there were negative returns. While rates this robust may not hold true going forward, average growth that’s half that historical rate is still solid.

    Ensure your assets are appropriately allocated. A person’s assets should be strategically allocated across various classes: equities (stocks, etc.) and fixed investments (bonds and the like), primarily, along with real estate and, perhaps, alternative investments. Allocating assets appropriately across those classes means finding the right balance between growth potential and downside protection. That balance depends on a person’s risk profile — i.e., their age and stage of life, life goals, financial obligations over the short and long terms, and a range of other individual factors.

    Because large swings in investment markets tend to result in shifts within a person’s asset portfolio, it’s wise to assess how those assets are allocated in the wake of a significant stock market drop such as the one precipitated by the COVID-19 pandemic, adjusting as necessary.

    Manage your cash reserve wisely. In the context of asset allocation, it’s also important for people to maintain a cash reserve or emergency fund, from which they can draw in a pinch (such as due to a job loss) instead of having to resort to liquidating stocks or tapping retirement accounts when their value is down during a bear market. How large of a cash reserve?  The general rule of thumb is three months — but preferably closer to six to nine months — of basic living expenses. Be sure that money is readily accessible in a high-yield savings or money-market account, for example.

    Enlist the help of a financial professional to guide you. Despite all the pandemic-related restrictions, many financial professionals are on call and available for virtual meetings and phone conversations to help existing as well as new clients. To find a CERTIFIED FINANCIAL PLANNER™ professional in your area, check out FPA’s searchable national database at www.PlannerSearch.org.

    Take advantage of opportunities to dollar-cost-average. One step investors can take to blunt the impact of drops in the value of their retirement accounts, college savings plans and investment portfolios is to continue to invest a fixed amount in those accounts. This maneuver, known as dollar-cost-averaging, essentially enables them to take advantage of a buying opportunity when prices are lower.

    Get a big-picture financial plan if you don’t have one, and if you do have one, revisit it. A good long-term financial plan specifies the asset-management strategies and steps you plan to take, if any, during a bear market. If you don’t have a plan in place, enlist a financial planner to create one for you. Ask friends, family and business colleagues/connections for a referral, or search FPA’s database to find one.

    April 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

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  • 16 Mar 2020 3:40 PM | Anonymous

    The temptation to dip into retirement assets early can be powerful, especially during financially stressful circumstances. Unexpected job (and income) loss. A huge college tuition bill. A disability or health issue that cuts into earning power and brings unanticipated medical expenses. These are among many reasons that people might consider tapping into their retirement accounts — IRAs, 401(k)s and the like.

    These types of accounts were designed to be treated much like a produce crop. Plant seeds. Provide light, water and fertilizer consistently. Let grow. Harvest when ripe. With retirement accounts as with crops, there are opportunities to harvest prematurely but also, potentially, consequences for doing so.

    “Generally speaking, tapping into your retirement accounts early is a bad idea,” says FPA member and CERTIFIED FINANCIAL PLANNER™ professional Jonathan P. Bednar of Paradigm Wealth Partners in Knoxville, TN. “There is a reason Albert Einstein called compounding the eighth wonder of the world. Letting your money grow for you for the long-term and avoiding the temptation to access that money early can [pay] extraordinary dividends.”

    “When you see how much money one dollar can turn into over 30 years, it’s easy to justify leaving those assets alone until retirement,” adds FPA member Leon LaBrecque, CFP® of Sequoia Financial in Troy, MI.

    Under federal rules, people with a qualified retirement account such as a 401(k) or a traditional IRA (Individual Retirement Account) can start withdrawing funds from their account at age 59½ and must take distributions from their account starting at age 72. Withdrawing money from a qualified retirement account prior to age 59½ means the account holder not only will likely have to pay state and federal income tax on the amount withdrawn, they also will be subject to a 10% tax penalty, unless the money is used for certain “excluded” purposes. Those exclusions include:

    • When the funds are used by the account holder or a qualified family member to purchase or rebuild a first home (limited to $10,000 per lifetime).
    • When the funds are used to cover medical expenses that were not reimbursed, or to pay for medical insurance if the account holder loses his or her employer’s insurance.
    • When the funds are used to cover higher education expenses.
    • When the funds are used to cover expenses related to the birth or adoption of a child (a new exclusion as of 2020).
    • When an employee, after separating from employment, withdraws the funds systematically in a series of at least five installments, known as Substantially Equal Periodic Payments, or SEPPs.
    • When the funds are withdrawn from a 401(k) (but not an IRA, for which different rules apply) by an employee who separates from employment (retires, quits or is fired) at age 55 or later.

    The drawbacks to withdrawing money early from a retirement account extend well beyond tax penalties. For one, an early withdrawal sacrifices the growth potential of the assets that are withdrawn. Taking money out of a retirement account prematurely means losing out on the compound growth potential associated with those assets. The assets held in a retirement account have the potential to compound in value, without taxes eroding that value. Over time, earnings can compound upon earnings, providing the growth engine that people rely upon to build a large enough asset base to last through retirement.

    For 401(k) account holders, early withdrawals must come out in the form of a loan that must be repaid over time. So the withdrawal comes with a payback obligation as well as a tax obligation and a penalty.

    An early withdrawal also amounts to a reduction in the size of a retirement nest egg. It means using money now that likely will be needed later, during retirement, notes LaBrecque. “You need to make sure you are keeping a sustainable amount for the future, taking into account inflation and expectations of future expenses.”

    “Your 401(k) [or other type of retirement account] is not a bank,” he adds. Instead, he suggests treating it as an untouchable asset in the vast majority of circumstances.

    In certain rare situations, however, a retirement account could be a person’s last financial resort — their only means of covering basic living expenses (or dealing with an unexpected severe financial challenge). In those situations, says LaBrecque, “survival is more important than retirement,” and a premature withdrawal could be warranted.

    There also are rare situations where making a series of early withdrawals — SEPPs — under Rule 72(t) in the federal tax code may make sense, according to LaBrecque.  The rule exempts taxpayers from early penalties provided they take account withdrawals in at least five installments over five years. This could be an option for people who retire prior to age 59½.

    Before deciding to tap a retirement account early and live with the consequences, seek advice from a financial professional to discuss other potential options, suggests New York City-based FPA member Sallie Mullins Thompson, CFP®. Often, there’s another, better alternative. “It is imperative to look at all other options first.”

    During situations in which early retirement account withdrawals are a consideration, “there is no one-size-fits all strategy,” says FPA member Sean M. Pearson, CFP® based in Conshohocken, Pa. “But working with a financial planner will help find the best solution for your unique situation.”

    To find a CERTIFIED FINANCIAL PLANNER™ professional in your area, use the Financial Planning Association’s national searchable database, accessible at www.PlannerSearch.org.

    March 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.


  • 16 Mar 2020 3:38 PM | Anonymous

    You’ve been a renter, a tenant, for long enough. Now you’re ready to say goodbye to the landlord and become a homeowner yourself for the first time.

    You are not alone. The credit bureau TransUnion projects at least 8.3 million first-time homebuyers will enter the housing market between 2020 and 2022, up significantly from 7.6 million during the 2016-2018 period.

    For many people, buying that first home is the single largest purchase, and, perhaps, the most important investment, they have made to this point in their lives. Given the financial magnitude of a first home purchase, the nuances of the purchasing process and the far-reaching ramifications it’s likely to have on a person’s (or a couple’s) life, the better prepared you are, the more positive the outcome is likely to be.

    Here in the second in a series of articles from the Financial Planning Association® (FPA®) about home ownership, CERTIFIED FINANCIAL PLANNER™ professionals provide potential first-time home-buyers with advice and guidance to help prepare for and navigate the purchase experience.

    So, you’re considering purchasing your first home. Having never been down this road before, you have questions: How does the process work? What should I do to prepare in advance? Are there steps I can take to put myself in a better financial position leading up to and after the purchase?

    The answer to the latter question is, of course, “Yes!”

    “Planning ahead is a great way to get ready for owning a home for the first time,” says FPA member and CERTIFIED FINANCIAL PLANNER™ professional Amy F. Merrill of True Wealth Management in Atlanta, GA.

    Here’s a closer look at some of the key planning steps first-time home-buyers should consider taking prior to the purchase, along with other important details about the process.

    Check your credit score, and if possible, do what you can in the short-term to improve it. Unless you have a significant lump sum of cash available and a willingness to spend it, you likely will need to secure a mortgage loan to cover a large portion of the home purchase. Generally speaking, the better your credit score (as calculated by the major credit bureaus, TransUnion, Experian and Equifax), the better terms you should be able to secure for a mortgage (greater borrowing power at a lower interest rate).

    So check your credit score first. You can do so free of charge via websites such as Credit Karma and freecreditscore.com. Besides seeing where you stand, you also should look carefully through your credit report to see if there are any errors that could lower your score, says FPA member Michelle A. Fait, CFP®, who heads Satori Financial LLC in Seattle, WA.

    While improving your credit score tends to take time, she notes, it’s possible to make short-term improvements in your score by paying all your bills on time, and by ensuring you make at least minimum monthly payments on all your credit cards.

    • Set aside money for a down-payment, keeping it hands-off in in a separate savings account. The larger the cash amount you pay upfront, the lower the amount you’ll need to borrow and pay interest on. The key word here is interest. The longer the term (length) and the amount of the loan, the larger the overall amount of interest you’ll pay on the loan. Say a person buys a $250,000 home, for which their down-payment is $50,000. That means they’ll need a mortgage of $200,000. If it’s a 30-year mortgage with an interest rate of 5%, they’ll end up owing the lender a total of about $386,500 over the life of the loan, including $200,000 in principal (the original loan amount) and $186,500 in interest.

    Those figures underscore the importance of focusing on saving toward a down-payment. To do so, set aside money in a high-interest savings account that you establish exclusively for the home purchase (find the best interest rate at a site like www.bankrate.com). To take guesswork out of the equation, automate contributions to the account. And be sure you commit to leaving the money in the account until you’re ready to pull it out for the purchase.


    • Factor in your priorities as well as your financial wherewithal in determining how much to spend on a home. One of the first things mortgage lenders do with potential borrowers is to determine how much of a mortgage they would qualify for, based on a formula that accounts for household income, debt and other factors. Use that figure as a guide only, recommends
    FPA member Marisa Bradbury, CFP® of Sigma Investment Counselors in Lake Mary, FL. “Mortgage companies will approve you for a much higher amount than you typically should be spending. Just because you’re approved for that amount, doesn’t mean you should spend that amount.”

    Be sure to look beyond the numbers, too, giving adequate weight to other important big-picture factors, Fait suggests. “One of the biggest drivers of both happiness and grief in your personal financial life is where you live. If you buy as much house as you can afford and love everything related to it, super. If you do this and your housing costs crowd out every other thing you might want to do (eating out, movies, travel, etc.) you might do better to buy less house and have more flexibility.”

    “Think about your take-home pay every month, allocate it out to your priorities (food, travel, student loans, anything else that’s important to you) and then see what you can afford without sacrificing other things that are important to you. It’s all a trade-off,” adds FPA member Tess Zigo, CFP®, of Waddell & Reed Financial Advisors in Overland Park, KS. “Think about what’s really important in a home, location, size, style, etc., …and so instead of spending the extra money on a bigger mortgage…I choose to spend the extra money I have on experiences — traveling, nights out with friends and ultimately being able to reach financial independence in my 50s. It’s really important to look in the mirror and decide what’s important to you and makes you happy, not what society often tells us to view as success — the big house, for example — but what brings you the most joy.”


    • Comparison-shop for a mortgage. Approach at least three lenders for a quote, including a bank with which you have a relationship, as well as an independent mortgage broker and a third institution such as a credit union or an online lender, suggests Fait. Then compare annual percentage rates, not just interest rates. “The APR gives you a true comparison of loan interest rates and costs.”

    • Look for tax breaks and other perks for first-time home-buyers. Many states provide financial incentives and tax credits to first-time home buyers. Nerd Wallet offers an overview of those perks here.

    • Budget for more than just a mortgage payment. The mortgage payment is merely one line item (albeit a large one) in the overall tab for home ownership. There’s also state and local taxes and homeowner’s insurance, which a mortgage lender typically will wrap into the cost of monthly payments (as escrow).

    Then there are the other expenses that come out of the homeowner’s pocket: utilities, maintenance on the home and yard, repair and replacement of appliances, roof, etc., and perhaps other costs such as homeowner association fees, home improvement projects and the like. “We always recommend that clients have a 'house fund' with $10,000 to $15,000 to handle the ‘joys of home ownership’ issues,” explains Merrill.

    Also budget for new furnishings, Fait suggests. “You might want or need a few new items for the new house, but plan for them, rather than allow the new house to encourage lifestyle creep.”

    • Take your budget for a test drive. “Before you buy the house, definitely practice living with the new monthly expenses to see how it feels before you jump in,” Merrill recommends.

    • Put payments on autopilot. Automate your mortgage payment and your utility bill payments. Paying on time every time helps to build a better credit score, a positive for the next time you buy a home!


    March 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.


  • 25 Feb 2020 10:30 AM | Anonymous

    To Rent or Own a Home? Guidance to Decide What’s Best for You

    Owning a home has long been considered an integral part of the American Dream, something to aspire to and, at least in general terms, a viable course of action for people seeking to own a hard asset whose value potentially may appreciate significantly over time. But changing market dynamics — rising home prices, uncertainty about interest rates and the like — along with peoples’ shifting priorities have raised new questions about home ownership and how exactly it fits in today’s version of the American Dream.

    This article is the first in a series of four developed by the Financial Planning Association® (FPA®) to provide answers to some of those pressing questions by exploring issues such as purchasing vs. renting a home, the home purchasing process for first-time home buyers, maximizing the value of a home as an asset, and ways to fund a home remodel/renovation.

    The first article tackles the “Rent or own?” question, with insight from CERTIFIED FINANCIAL PLANNER™ professionals who are members of FPA.

    What’s best, owning a home or renting one?

    The answer: It depends — on a person’s stage in life, geographic location, priorities, financial circumstances and other considerations.

    First, some facts to consider. In its 2020 Rental Affordability Report, ATTOM Data Solutions found that owning a median-priced, three-bedroom home is more affordable than renting a three-bedroom property in 455, or 53%, of the 855 U.S. counties it analyzed. It also found that home ownership is “more affordable mainly in lightly populated counties and renting more affordable in more populous suburban or urban areas.”

    Those figures suggest that before deciding which course to take, it’s important for people to research the real estate market dynamics in the specific area in which they are considering buying or renting a home, and consult a realtor or rental agent if they want more insight into those dynamics. “People need to dig deep so they know the actual cost of owning a home in the area they’re considering,” says FPA member and CERTIFIED FINANCIAL PLANNER™ professional Henry Hoang of Bright Wealth Advisors in Newport Beach, CA. “Run multiple scenarios that are realistic and conservative to form a sound conclusion. When running the scenarios, you need to plan for many what-if’s such as home repairs, an unexpected decrease in income, or additional expenses from a growing family. The more clarity you have when running projections, the higher your probability in making the correct decision.”

    To find that clarity, consider engaging a financial professional to help run the numbers, weigh all the factors and guide you to a sound decision. To find a CERTIFIED FINANCIAL PLANNER™ professional who works in your area, visit FPA’s searchable national database at www.PlannerSearch.org.

    You could be a good candidate to BUY a home…if you intend to stay in the home for five to seven years or longer; if you want to own an asset whose value will potentially increase over the long term; if you want to take advantage of the prevailing low mortgage rate environment; if you have the patience, perspective and wherewithal to weather real estate market cycles in which the value of the home could potentially drop substantially (but also appreciate substantially); if you have the comfort level, financial wherewithal and credit history to take on a mortgage, make monthly payments and pay off the loan in a timely fashion; if you have the resources and the wherewithal to maintain the home, covering the cost of repairs and upgrades as needed, as well as other potential costs, such as homeowner association fees; if you are able to take advantage of tax breaks that come with home ownership; if you plan to treat the home as a short-term investment, to fix up and sell; and, if you want an asset whose value you can tap to generate liquidity for other needs.

    Purchasing a home is a major commitment, financially, logistically and even psychologically. Financially, today’s relatively low mortgage rates can make purchasing a home more appealing and attainable. The real estate website Zillowpredicts that mortgage rates will remain near their current levels “for the bulk of 2020.”

    Federal tax policy has long allowed homeowners who itemize their tax deductions to claim the mortgage interest and property taxes they pay each year as tax deductions. However, recent tax policy developments limit the deductibility of those expenses, thus making home ownership financially less appealing for some.

    If your plan is to stay in the home for at least five to seven years, owning a home “is usually the better choice,” says FPA member John R. Power, CFP® based in Walpole, MA. “It becomes a home and not just a place to live. It typically gains value over time, but will almost always gain in equity. And it may actually be less costly than a rental of equivalent size” in terms of total cost of ownership.

    Home ownership comes with responsibility for upkeep and repairs. People who are willing to invest the time and money to maintain and perhaps improve their home may find they can earn a significant return on that investment, as real estate assets generally tend to appreciate in value over the long term, particularly properties that are well-maintained and/or improved (such as via a remodel). There’s also the short-term fix-and-flip option, where people purchase a home, upgrade it and sell it with the goal of earning a quick profit on the sale.

    Though home values do tend to increase over time, homeowners must be aware that real estate markets are cyclical. There’s a very real risk that their home could lose value. But unless they sell the home when its value is depressed, that drop in value is only a number on paper. The historical cyclicality of real estate markets suggests that the home will eventually regain lost value and continue to appreciate.

    As a home appreciates in value, it gives the homeowner the ability to tap that added value — called equity — and turn it into a cash resource. The equity in a home can be used to fund a home equity loan or home equity line of credit, each of which can be used constructively, such as to help fund a home remodel project, a child’s education or to meet an emergency cash need.

    You could be a good candidate to RENT a home…if you intend to move within five to seven years; if you lack the financial means and/or desire to take on a substantial debt; if your credit score/credit history makes it difficult to secure a mortgage with reasonable terms you can afford; if you’re moving to a new area and want to get a feel for it before committing to buying a home there; if you prefer not to assume responsibility for maintaining and repairing a home; if you’re willing to live according to the rules established by the property owner/landlord; if you’re comfortable assuming the risk that your rent could increase year to year, sometimes significantly, along with the risk that the landlord from which you rent (or the property manager) may not be as responsive as you expect in maintaining/repairing the home, as well as the risk that the landlord could decide to terminate your lease with little notice; if you prefer to use your money for other constructive purposes, such as to invest or to save toward retirement or a child’s education, and lack the resources to do all these at once.

    Before determining which path to take, first consider your expectations with regard to where you live. “If you are not planning to live in the new home for longer than five years,” says Hoang, “the safer bet is to rent. With all the costs associated with buying and selling a home combined with high levels of economic uncertainty today, most people would be better off renting if they are looking at a shorter-term time horizon.”

    From a cost perspective, rent increases are a fact of life for many renters. Zillow expects annual rent appreciation to hover around 2.3% for the first part of 2020. However, “by the end of [2020], we expect annual rent growth to fall below two percent.” Still, renters must account for the possibility of annual increases in monthly rent.

    Don’t let stigmas about renting impact your decision, says FPA member Jake Northrup, CFP®, CFA, CSLP® who heads the financial planning firm Experience Your Wealth in Bristol, RI. “The belief that ‘rent is throwing money away’ is so far from true…Buying a home isn’t always the right thing to do. It ties back to what you value and how it impacts your other priorities.”


    He suggests that before making the call on whether to rent or buy a home, that people consider opportunity cost: what they would otherwise do with the money required for the down-payment, mortgage closing costs and other costs associated with buying a home. Perhaps they’d prefer to use it in pursuit of some other important goal, such as paying for graduate school, paying down a burdensome college loan or large credit card debt, building out an investment portfolio, starting a business or even funding a year-long sabbatical from work, for example.

    Lifestyle flexibility is another factor to weigh. “Life can change quick and you don’t want to feel held back by a certain asset,” Northrup adds. “You may want to live in a few places, change jobs, start a business, etc. Renting allows you to adjust your housing situation to directly accommodate changes in your financial situation. The bank is not going to say, ‘Hey, you can start paying 20% less in mortgage payments so you can start a business.’ However, you could move to a new area or reduce your space to pay 20% less in rent so you can start that business.”

    February 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.


  • 25 Feb 2020 10:29 AM | Anonymous

    Inside the SECURE ACT: How New Law Could Impact Your Money, Your Savings Habits and Your Retirement

    When the SECURE Act became law in late 2019, it was widely hailed as a step forward for people seeking greater financial security and flexibility in retirement.

    “Passing the SECURE Act is a big victory that will help ensure that all hard-working Americans have a chance to build a nest egg for their retirement,” said Ohio Republican Sen. Rob Portman, who devised and championed some provisions of the law.

    Prudential, a large insurance company that offers a range of retirement savings vehicles, said the law “contains the most significant legislative enhancements to the private-sector retirement system in over a decade and will improve the retirement readiness of millions of Americans.”

    As broadly lauded as the SECURE Act (the tidy acronym stands for Setting Every Community Up for Retirement Enhancement) was upon its passage, whether it has the desired impact in helping to remedy America’s retirement savings shortcomings likely won’t become clear for some time. Many of its provisions took hold Jan. 1, 2020. The law is widely viewed as an incremental policy step toward giving retirement savers greater means and incentive to create a secure financial future for themselves, but hardly a panacea for an overall savings shortfall that today has many people financially ill-prepared for retirement.

    “There is still more that we can do to help more Americans save for their retirement,” Portman said in a statement. “I believe that passage of the SECURE Act can help pave the way for bolder reforms in legislation.”

    As for how the law will impact people and families, FPA member and CERTIFIED FINANCIAL PLANNER™ professional Kristin McKenna of Darrow Wealth Management in Concord, Mass., said it’s too early to tell. “It’s going to depend on a person’s individual circumstances, and a lot of people may not feel any impact for a while. The folks who I expect will feel its impact the soonest will be those who are nearing retirement.”

    Whether you’re a person for whom retirement is a current reality, an approaching likelihood or a remote, decades-away consideration, chances are strong you’ll be affected to some extent by the SECURE Act. What exactly is in the new law? Which of its provisions will affect whom, and when? Here’s a look at some of the key aspects of the law, with insight from a handful of CERTIFIED FINANCIAL PLANNER™ professionals on their potential impact.

    Lifting of the age limitation on contributions to a traditional IRA. Under previous law, a person could only contribute to a traditional IRA up until age 70½. Under the SECURE Act, people can continue to make IRA contributions regardless of age, provided they continue to earn income from employment. This adjustment reflects a trend in which people are choosing to work past traditional retirement age; it also aligns traditional IRA contribution rules with rules for 401(k)s and Roth IRAs.

    Increasing from 70.5 to 72 the age at which people with qualified retirement accounts [traditional IRAs, 401(k)s, etc.] must begin taking required minimum distributions (RMDs) from those accounts. With this provision, which applies beginning with people who turn 70.5 in 2020, retirement savers gain additional latitude in managing their retirement account withdrawals. They also gain additional time for the assets in those accounts to potentially increase in value. “This is a very positive change for most of our clients,” said FPA member Amy Shepard, CFP®, with Sensible Money, a financial planning firm in Scottsdale, AZ. “It gives them an extra 18 months to defer the tax implications of RMDs, which opens up more flexibility for tax-efficient planning.” For example, she notes, people will have additional time to convert assets in traditional retirement accounts to Roth assets.

    Eliminating the lifetime stretch provision for people who inherit a retirement account, and replacing it with a 10-year window for taking distributions from those inherited accounts.

    Under prior law, a person inheriting an IRA or 401(k) had the option of “stretching" the distributions they take from that account over their lifetime. Effective in 2020, the new rules require these inheriting non-spouse beneficiaries to withdraw assets from the inherited account within 10 years of the original account-holder’s death.  There are notable exceptions to the new 10-year requirement, however. It does not apply to a surviving spouse, nor to a minor child, a disabled or chronically ill beneficiary, or to beneficiaries who are less than 10 years younger than the original account owner.

    Despite those exceptions, some financial professionals say the demise of the lifetime stretch provision for inherited retirement plans could complicate tax planning for people inheriting a retirement account. “For those consumers who expect to inherit assets from their parents at some point, this can have a major impact on their tax situation,” said Shepard, “especially those consumers who are nearing retirement themselves and trying to manage their own taxes closely.”

    The SECURE Act did provide inheriting beneficiaries with flexibility in when they make retirement account withdrawals within that 10-year window, she noted, by eliminating annual RMDs from those inherited accounts and instead allowing inheriting beneficiaries to take distributions at their own pace, as long as the entire amount in the account is drawn down within the required 10 years.

    Giving long-term, part-time workers the opportunity to participate in a defined-contribution plan. Under prior law, people who worked less than 1,000 hours per year generally were ineligible to participate in their employer’s defined-contribution [401(k), etc.] retirement plan. The SECURE Act requires employers that offer a defined-contribution plan to provide access to their plan to long-term, part-time workers who work at least 500 hours each year for three consecutive years and are age 21 or older. That three-year lookback window opened as of Jan. 1, 2020, meaning 2024 is the earliest that qualifying part-time employees can start benefitting from the provision, according to McKenna.

    Creating opportunities for retirement plan sponsors to offer workers more lifetime income vehicles inside retirement accounts. With the decline of pension plans, Americans have been seeking ways to turn their retirement account assets into a guaranteed income stream for retirement. The SECURE Act opens the door for retirement plan sponsors to include new options for plan participants to convert plan assets into retirement income via annuity-like vehicles. Employers had been reluctant to offer these so-called “in-plan annuities” because of potential liability issues if the annuities failed to perform as promised. The new law addresses that concern by giving employers a “safe harbor” that protects them from liability when offering an in-plan annuity to employees. It also gives these in-plan annuities portability, whereby employees, if they switch jobs, can transfer their annuity to another plan without incurring surrender charges or fees.

    Making it easier for smaller businesses to participate in multi-employer retirement plans so they can offer their employees access to retirement accounts. This provision seeks to relieve small businesses of the high administrative cost burden associated with offering a retirement plan to employees. It allows otherwise unrelated small employers to participate in open multi-employer plans (MEPs) so they can offer their employees a retirement plan while sharing plan administrative costs and responsibilities with other employers in the MEP. The SECURE Act also protects companies participating in an MEP by removing the so-called “one bad apple” rule under which all employers that are part of an MEP could face adverse tax consequences if one employer MEP participant failed to meet certain requirements.

    Increasing the cap for employee auto-enrollment contributions to an employer-sponsored retirement plan from 10% of pay to 15% to encourage greater employee retirement savings. Employees whose workplace retirement plan has automatic enrollment now can have up to 15% of their pay automatically directed into their retirement plan.

    Allowing parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of the birth or adoption of a child to use those funds to cover qualified expenses. While this SECURE Act provision gives new parents additional financial flexibility, McKenna said she’s “not a big fan” of people tapping their retirement accounts prematurely unless there’s a financial emergency and the person has no other alternative. Otherwise, the person is better off leaving that money in their retirement account, where it has the potential for compounded growth over the long-term.

    Allowing parents to withdraw up to $10,000 from tax-favored 529 education savings plans to repay student loans. This provision “makes a ton of sense,” said McKenna. “To have the option of using the extra money in a 529 plan to pay down a student loan debt, I think, is a great value-add” for plan participants. The provision carries a lifetime limit of $10,000 per beneficiary and $10,000 per each of the beneficiary's siblings.

    Expanding 529 college plan eligibility to include apprenticeship programs. Under the new law, funds from 529 plans can be used to cover the cost of registered apprenticeship programs, a boon for the hundreds of thousands of people who opt to pursue apprenticeships instead of college. McKenna said she endorses the change. “This should have been done a long time ago.”

    February 2020 — This column is provided by the Financial Planning Association® (FPA®) and FPA of Greater Kansas City, the principal membership organization for Certified Financial PlannerTM professionals.

    FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA advances financial planning practitioners through every phase of their careers, from novice to master to leader of the profession. Please credit FPA of Greater Kansas City if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.

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