Grimaldi & Yeung

What is the SECURE Act of 2019?

Changes to your IRAs, 401(k)s, RMDs, and more:

The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was approved by the Senate on Dec.19, 2019. This Act includes retirement savings and employee benefit changes as outlined below:

• The Act changes the age required to take Required Minimum Distributions (RMDs) from your retirement accounts, from age 70 ½ to age 72. This applies to the following accounts: 401(a), 401(k), 403(b), and governmental 457(b) plans and traditional IRAs. As of today though, there is no age limit on making Roth IRA
• For beneficiaries of a retirement account and traditional IRAs, whose account owner passed after December 31, 2019, you will need to withdraw the assets in these accounts within 10 years after owner’s death. The only exceptions to this 10-year distribution requirement apply to a surviving spouse, a minor child, a disabled or ill individual, and beneficiaries who are less than 10 years younger than the account owner.

Benefits of the SECURE Act:

• Act will allow account owners to continue their retirement savings for a longer period of time, and allows traditional IRA owners to keep making contributions indefinitely.
• The SECURE Act makes it easier for small business owners to set up “safe harbor” retirement plans.
• Part-time workers will be able to participate in an employer retirement plan.
• The Act directs most non-spouses inheriting IRAs take distributions that empty the account in 10 years.
• The Act allows 401(k) plans to offer annuities.

The Secure Act requirement that the named beneficiaries take out their payments over a 10-year period comes with challenges. The concentration of payment in a short period will certainly suddenly increase the named beneficiary’s income and with a potential increase of their own income tax liability, by increasing their income tax rate on all of their other regular income. This increase in annual income during their next 10 years could impact their eligibility for other tax benefits, entitlements, etc. and should be considered in naming beneficiaries.

Contact our office for an update of your retirement planning and to learn the advantages of using a Trust in the payout of a retirement account.

Senior Veterans Should Apply for These Benefits

There are funding programs from the VA that can help offset the cost of certain types of care later in life. For those who served their country, these benefits may be a big help.

Senior budgets are part of the challenge of aging. For veterans, there’s good news from a recent article from U.S. News & World Report, “Veteran Benefits for Assisted Living,” that says some senior living companies are working to help veterans obtain benefits that can help with their costs.

Note that the VA won’t pay for a veteran’s rent in an assisted living facility. However, VA benefits may pay for some of the extra services required, like nursing assistance, help with bathing and toileting, and possibly meals.

There are a variety of benefits that may help, based on a veteran’s specific service history and eligibility. The most commonly used benefits are the Aid & Attendance Pension.  Another common benefit is the Survivor’s Pension for spouses of a deceased veteran with wartime service.

The VA’s Aid & Attendance and Housebound program is part of the pension benefits paid to veterans and survivors. The VA says these benefits are paid, in addition to a monthly pension. A veteran must satisfy one of the potential conditions, including:

• Requiring the aid of another person to perform personal functions, like bathing, dressing, eating, toileting, or staying safe from hazards;
• Being disabled and bedridden, above what would be thought of as recovery from a course of treatment, such as surgery;
• Being a patient in a nursing home due to physical or mental incapacity; and
• Having very poor eyesight (5/200 corrected visual acuity or less in both eyes) or a field of vision limited to five degrees or less.

Veterans may qualify for these benefits, which are added to the standard monthly pension, when he or she is “substantially confined to your immediate premises because of permanent disability,” the VA says. Eligibility for the program is based on a case by case basis and involves a review by the VA.

Like any other government benefit, it’s important to start the application process early, rather than waiting until a crisis hits and benefits are critical. The goal is to maximize the use of the money saved, so that the individual can afford high-quality care for as long as possible, and the hope is that the VA benefits will help to do that. An experienced estate planning or elder law attorney who routinely works with veterans and their families will be an important resource.

Reference: U.S. News & World Report (August 12, 2019) “Veteran Benefits for Assisted Living”

How Does a 457(b) Retirement Plan Differ from a 401(k)?

City, State and Municipal Employees – this article is for you!  Your 457(b) retirement plan is a way to save for retirement, with tax benefits similar to a 401(k).

The tax-free growth of savings is perhaps the best known advantage of the 457(b) retirement plan, says Bankrate’s recent article, “Pros and cons of government 457(b) retirement plans.” Federal Government employees have access to a 457(b) plan and federal workers  have tax deferral thrift savings plan.  Both are available to supplement government pensions.

A 457(b) is similar to a 401(k), in that it lets employees deposit money in a special retirement account that provides tax advantages, letting savings grow tax-free over time. You can only defer a certain dollar amount each year, and the amount you can defer is linked to the cost-of-living (indexes), like the 401(k). Similar to the 401(k) program, which has both a pre-tax and an after-tax Roth version, 457(b) plans may also offer these two versions of the retirement plan.

The major difference between the two is that the pre-tax plan lets you contribute money and take a tax deduction today, and then at retirement you’ll pay taxes when you take money out of the account.  However, the Roth version of the 457(b) lets you put in money after-tax–paying taxes on the contributions today–but you won’t have to pay tax on any withdrawals at retirement.

A key difference in 457(b) plans is that 457(b) plans also may allow employees to save extra money, beginning three years before the “normal retirement age” (which is specified in the plan). In each of those three years, employees can contribute twice the normal elective deferral limit or the sum of the current year’s ceiling, plus unused portions from prior years, whichever is less.

When it comes to withdrawing funds early, 457(b) plans make it difficult to withdraw money in an emergency. A 457(b) plan can only make hardship distributions, if the participant has no other resources available. Then, if you take a distribution from the 457(b), you’d be required to stop making deferrals for a certain period of time.

You can’t take out money from 457(b) plan for foreseeable withdrawals like buying a house or paying tuition for a dependent. You can do so from a 401(k) plan, although most experts will tell you it’s not a great idea. The only way you can take a withdrawal from a 457(b), is if it is an extreme and provable emergency.

Another advantage is when you have an IRA, in addition to a 401(k) or a 457(b). These accounts are equally very tax-friendly for saving for retirement.

Reference: Bankrate (July 19, 2019) “Pros and cons of government 457(b) retirement plans”

New York State Bar Association Annual Meeting 2020

It has been a full week for the partners of Grimaldi & Yeung LLP participating in the 2020 New York State Bar Association (NYSBA) Annual Meeting. They attended the Elder Law Section meeting, the Trusts and Estates Meeting, the House of Delegates meeting and the first Bar Gala in several years.

Also, congratulations to the Asian American Bar Association of New York's (AABANY) Pro Bono Legal Advice and Referral Clinic program for receiving the Bar Leaders Innovation Award. Our partner, Pauline Yeung-Ha is Co-Chair of this AABANY program along with Karen Yao, Asako Aiba and Judy Lee.

Here are some photos from the above events:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Left to right: Judith D. Grimaldi at the House of Delegates meeting; Joanne Seminara, Co Chair of the Ethics Committee, participating on Ethics Panel CLE; Associate Justice Elena Kagan, honoree of Gala Dinner; Our partners, Pauline Yeung-Ha, Joanne Seminara & Judith D. Grimaldi at Gala Dinner; Joanne Seminara, Pauline Yeung-Ha, Judith D. Grimaldi with Hon. Tanya Kennedy