The SECURE Act which went into effect on January 12, 2020 made a number of changes to laws that will effect the retirement of nearly every American. Most notable was the elimination of Stretch IRA’s, which will now force most non-spouse beneficiaries to withdraw inherited IRA balances in a 10 year timeframe. Other significant IRA changes was increasing the age that Required Minimum Distributions (RMD’s) must begin from 70 ½ to 72 as well as repealing the age limit for making Traditional IRA contributions. Additionally, many changes were passed that will effect employer-sponsored qualified plans along with many other miscellaneous changes. In this article, we outline the key changes in the act and what they mean to you.

TITLE I: Expanding and Preserving Retirement Savings

Section 102.  Simplification of Safe Harbor 401(k) Rules 

The legislation changes the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection and facilitate plan adoption. The legislation eliminates the safe harbor notice requirement, but maintains the requirement to allow employees to make or change an election at least once per year.  The bill also permits amendments to nonelective status at any time before the 30th day before the close of the plan year.  Amendments after that time would be allowed if the amendment provides (1) a nonelective contribution of at least four percent of compensation (rather than at least three percent) for all eligible employees for that plan year, and (2) the plan is amended no later than the last day for distributing excess contributions for the plan year, that is, by the close of following plan year. 

Section 103.  Increase Credit Limitation for Small Employer Pension Plan Start-Up Costs 

Increasing the credit for plan start-up costs will make it more affordable for small businesses to set up retirement plans. The legislation increases the credit by changing the calculation of the flat dollar amount limit on the credit to the greater of (1) $500 or (2) the lesser of (a) $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan or (b) $5,000. The credit applies for up to three years. 

Section 104.  Small Employer Automatic Enrollment Credit  

Automatic enrollment is shown to increase employee participation and higher retirement savings. The legislation creates a new tax credit of up to $500 per year to employers to defray startup costs for new section 401(k) plans and SIMPLE IRA plans that include automatic enrollment.  The credit is in addition to the plan start-up credit allowed under present law and would be available for three years.  The credit would also be available to employers that convert an existing plan to an automatic enrollment design. 

Section 105.  Treat Certain Taxable Non-Tuition Fellowship and Stipend Payments as Compensation for IRA Purposes  

Stipends and non-tuition fellowship payments received by graduate and postdoctoral students are not treated as compensation and cannot be used as the basis for IRA contributions. The legislation removes this obstacle to retirement savings by taking such amounts that are includible in income into account for IRA contribution purposes. The change will enable these students to begin saving for retirement and accumulate tax-favored retirement savings. 

Section 106.  Repeal of Maximum Age for Traditional IRA Contributions 

The legislation repeals the prohibition on contributions to a traditional IRA by an individual who has attained age 70½.  As Americans live longer, an increasing number continue employment beyond traditional retirement age.   

Section 108.  Portability of Lifetime Income Options  

The legislation permits qualified defined contribution plans, section 403(b) plans, or governmental section 457(b) plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan or IRA of lifetime income investments or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan.  The change will permit participants to preserve their lifetime income investments and avoid surrender charges and fees. 

Section 109.  Treatment of Custodial Accounts on Termination of Section 403(b) Plans 

Under the provision, not later than six months after the date of enactment, Treasury will issue guidance under which if an employer terminates a 403(b) custodial account, the distribution needed to effectuate the plan termination may be the distribution of an individual custodial account in kind to a participant or beneficiary. The individual custodial account will be maintained on a tax-deferred basis as a 403(b) custodial account until paid out, subject to the 403(b) rules in effect at the time that the individual custodial account is distributed. The Treasury guidance shall be retroactively effective for taxable years beginning after December 31, 2008. 

Section 111.  Allowing Long-term Part-time Workers to Participate in 401(k) Plans 

Under current law, employers generally may exclude part-time employees (employees who work less than 1,000 hours per year) when providing a defined contribution plan to their employees.  As women are more likely than men to work part-time, these rules can be quite harmful for women in preparing for retirement.  Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service. In the case of employees who are eligible solely by reason of the latter new rule, the employer may elect to exclude such employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules. 

Section 112.  Penalty-free Withdrawals from Retirement Plans for Individuals in Case of Birth or Adoption  

The legislation provides for penalty-free withdrawals from retirement plans for any “qualified birth or adoption distributions.” 

Section 113.  Increase in Age for Required Beginning Date for Mandatory Distributions 

Under current law, participants are generally required to begin taking distributions from their retirement plan at age 70 ½. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries.  However, the age 70 ½ was first applied in the retirement plan context in the early 1960s and has never been adjusted to take into account increases in life expectancy.  The bill increases the required minimum distribution age from 70 ½ to 72. 

Section 115.  Treating Excluded Difficulty of Care Payments as Compensation for Determining Retirement Contribution Limitations 

Many home healthcare workers do not have a taxable income because their only compensation comes from “difficulty of care” payments exempt from taxation under Code section 131.  Because such workers do not have taxable income, they cannot save for retirement in a defined contribution plan or IRA.  This provision would allow home healthcare workers to contribute to a plan or IRA by amending Code sections 415(c) and 408(o) to provide that tax exempt difficulty of care payments are treated as compensation for purposes of calculating the contribution limits to defined contribution plans and IRAs.   

TITLE II: Administrative Improvements

Section 201.  Plans Adopted by Filing Due Date for Year May Be Treated as in Effect as of Close of Year  

The legislation permits businesses to treat qualified retirement plans adopted before the due date (including extensions) of the tax return for the taxable year to treat the plan as having been adopted as of the last day of the taxable year.  The additional time to establish a plan provides flexibility for employers that are considering adopting a plan and the opportunity for employees to receive contributions for that earlier year and begin to accumulate retirement savings. 

 Section 202.  Combined Annual Reports for Group of Plan 

The legislation directs the IRS and DOL to effectuate the filing of a consolidated Form 5500 for similar plans.  Plans eligible for consolidated filing must be defined contribution plans, with the same trustee, the same named fiduciary (or named fiduciaries) under ERISA, and the same administrator, using the same plan year, and providing the same investments or investment options to participants and beneficiaries.  The change will reduce aggregate administrative costs, making it easier for small employers to sponsor a retirement plan and thus improving retirement savings. 

Section 204.  Fiduciary Safe Harbor for Selection of Lifetime Income Provider 

The legislation provides certainty for plan sponsors in the selection of lifetime income providers, a fiduciary act under ERISA.  Under the bill, fiduciaries are afforded an optional safe harbor to satisfy the prudence requirement with respect to the selection of insurers for a guaranteed retirement income contract and are protected from liability for any losses that may result to the participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract.  Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a defined contribution plan. 

 Section 205.  Modification of Nondiscrimination Rules to Protect Older, Longer Service Participation  

The legislation modifies the nondiscrimination rules with respect to closed plans to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer service employees as they near retirement. 

TITLE III: Other Benefits

Section 302.  Expansion of Section 529 Plans 

The legislation expands 529 education savings accounts to cover costs associated with registered apprenticeships; homeschooling; up to $10,000 of qualified student loan repayments (including those for siblings); and private elementary, secondary, or religious schools.  

TITLE IV: Revenue Provisions

Section 401.  Modifications to Required Minimum Distribution Rules  

The legislation modifies the required minimum distribution rules with respect to defined contribution plan and IRA balances upon the death of the account owner.  Under the legislation, distributions to individuals other than the surviving spouse of the employee (or IRA owner), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the employee (or IRA owner), or child of the employee (or IRA owner) who has not reached the age of majority are generally required to be distributed by the end of the tenth calendar year following the year of the employee or IRA owner’s death.   

Section 402.  Increase in Penalty for Failure to File  

The legislation increases the failure to file penalty to the lesser of $400 or 100 percent of the amount of the tax due.  Increasing the penalties will encourage the filing of timely and accurate returns which, in turn, will improve overall tax administration. 

Managing your retirement plan

Managing Your Retirement Plan

Once you have implemented your retirement plan, it’s important that you are able to monitor and make adjustments to it as needed.  Making adjustments to your plan and managing your retirement is arguably the most important aspect of a financially sound retirement plan. After all, a plan is just a blueprint based on a number of assumptions and projections that change on a constant basis. In this article, I am going to share some of the most important items for managing your retirement plan that you will want to evaluate, and when you should do so.

Beginning of the Year

Many people look at the new year as a time to reflect and make positive changes – look no further than your crowded gym in January! It’s also an important time to revisit how you are managing your retirement plan.

First, take a look at the most pressing need – how to address your cash flow shortfalls. If you have been reading my previous posts around preparing for retirement, you should have a cash flow projection for the current year that shows your total outflows: living expenses, liabilities, insurance premiums, and projected tax liabilities. Compare this number with your total cash inflows: Any employment, Social Security, pension, annuity or rental income. The difference between total outflows and inflows is your cash flow deficit that you need to make up.

Your next order of business for managing your retirement plan is to determine which accounts or combination of accounts your funds should come from. This is where tax planning becomes extremely valuable. Let’s assume that your fixed income sources place you in a 12% Federal Marginal Tax Bracket (FMTB) in the current tax year and your cash flow deficit is $50,000. If you took the entire amount from your IRA, it would be treated as ordinary income and could possibly push you into the next Federal Marginal Tax Bracket (FMTB), which is 22%. If instead, you decided to make your distribution from a taxable account, you may be able to limit capital gain exposure, keeping your income low. In that case, a Roth Conversion strategy for the current year could help by allowing you to convert tax-deferred funds to tax-free funds at the lower tax rate of 12% as seen below.

If you know that you’ll be in the same or higher tax bracket in future years, this strategy can help to equalize your tax liability when managing your retirement plan. Remember that once you reach age 70 ½, Social Security income and RMD’s from qualified accounts must be taken, often increasing tax liabilities in your later retirement years. Generally speaking, it’s best to draw from taxable accounts first, tax-deferred accounts second and finally tax-free accounts like Roths, but this sequence of withdrawals should be revaluated each year, contingent upon your financial resources and suitability of the strategy as it applies to your financial situation.

Once you have determined where the funds will come from, set up a systematic withdrawal. Most of my clients prefer a monthly or quarterly withdrawal period, but this decision is entirely up to you. One thing to note – if you or your spouse are above the age of 70 ½ and need to take RMDs, make sure these amounts are included as part of your total annual income need. Lastly, if any spouse is still working, you have until April 15th to make any retirement contributions to either help defer some tax or add after-tax funds to a Roth to take advantage of future tax-free growth. Remember, you must have enough employment income to be eligible to make contributions.

Throughout the Year

During the course of the year, we all experience unexpected events and circumstances that affect our lives, thereby impacting our financial situation. One primary concern for most retirees when managing your retirement plan is declining health. It goes without saying that when these events arise, it’s important to reevaluate your plan and ensure you are making the necessary adjustments. However, in addition to adjusting your plan to account for the unexpected, there are some other housekeeping items that you need to pay attention to throughout the year. Depending on your investment management strategy, you will need to rebalance your investment portfolio occasionally. There are many types of different rebalancing strategies, but two of the most commonly used methods are calendar rebalancing, which simply seeks to rebalance the portfolio at predetermined time periods such as once a year, and tolerance-band rebalancing, which assigns percentage weightings for each asset class along with upper and lower limits that would trigger a rebalance of that asset class. No matter which strategy you choose for managing your retirement, you will need to tend to your portfolio and make the necessary adjustments so that your risk exposure does not increase over time. Stocks will typically appreciate at a faster rate than bonds through longer time horizons. Over time, this causes stocks to represent a higher weighting in your portfolio, thereby increasing the amount of risk you are taking on. Another major benefit of this strategy is that you are typically buying low and selling high in the long-run through a disciplined strategy that helps take emotions out of the process.

Another strategy that I discussed in my previous article, “Selecting The Right Investment Strategy In Retirement” is employing a tax-loss harvesting strategy. This strategy goes hand-in-hand with your rebalancing strategy – when there is market volatility, the values of the different asset classes in your portfolio can change significantly. Some positions will decline in value, creating an unrealized loss also known as a paper loss. Selling the position to realize a loss will allow you to use the loss against any investment gains in the current year and any unused losses can be carried forward indefinitely. It’s important to have a well-thought-out strategy when executing your portfolio management techniques. For example, you need to establish certain parameters to ensure you aren’t constantly turning over the portfolio, creating exorbitant trading costs or subjecting yourself to the Wash Sale Rule.

Lastly, increased medical costs, long-term care needs and unexpected death of a spouse will be events that you need to be prepared for when managing your retirement – and if you’ve been following along with your Free Retirement Checklist, then you should have addressed these concerns early in the planning process. However, to ensure you are protected adequately from these events, it’s important to review all of your insurance coverages to protect yourself from health risks as well as liability risks. You will want to conduct an annual review of the following insurance coverages:

  • Life Insurance
  • Long-Term Care Insurance
  • Auto and Homeowner’s Coverage
  • Umbrella Policy Coverage

End of Year

December 31st marks the last day of the tax year, which means it’s the last day to take advantage of a multitude of tax planning strategies. I already mentioned tax-loss harvesting as one benefit that expires after the 31st of December, but let’s explore a few other benefits to ensure you’re not missing out on any opportunities.

  • Roth conversions – As I discussed in a previous article, converting monies in tax-deferred accounts to tax-free accounts in years when your income is low can make a lot of sense for retirees. Prior to 2018, you were able to change the amount you were converting (Recharacterization), but after the Tax Cuts and Jobs Act of 2017 (TCJA), the last day to finalize your Roth conversion amount is the last day of the current tax year.
  • Establishment of retirement plans – Is either spouse self-employed or doing any type of part-time contracting? Self-employment income allows you to establish a variety of different retirement plans through your business like a Solo 401K. You have until the end of the current tax year to establish many of these plans, but many allow contributions until April 15th of the following year.
  • Required minimum distributions – If you are over the age of 70 ½ or have an inherited IRA where RMD’s were already being taken, then you must take the required minimum distribution in the current tax year. There is a 50% penalty of your annual RMD for not taking your mandatory distribution!
  • Charitable contributions – While the TCJA bill makes it more difficult for many retirees to itemize deductions, charitable contributions can boost your itemized deductions. There are many charitable gifting strategies that can be utilized to save taxes.

As you can see, the construction and implementation of your financial plan may be the most challenging aspect managing your retirement plan, but adjustments to your plan on an ongoing basis are just as important. Every financial decision you make is a reflection of how you decide to spend your golden years.

I hope this series of educational articles help guide you in preparing for retirement and managing your retirement plan. If you find that the process of managing your retirement is overwhelming or feel that you don’t have a great grasp of the material, then get some professional help from a Fee-only Certified Financial Planner™. Fee-only means that the advisor only receives fees from clients and no third parties to protect you from any conflicts of interest. I would recommend avoiding advisors that get paid commissions by third parties to sell their products. Transparency and objectivity are imperative to ensure you are getting advice that is in your best interest.

Implementing your retirement plan

Implementing Your Retirement Plan

Now that your retirement plan is complete it’s time to move on to implementation. During this step you will be interacting with the Social Security Administration, your human resources department, the custodians of your employer-sponsored retirement plans, your current investment custodian, your insurance companies, your estate planning attorney and your financial planner. Implementing your retirement plan on your own can leave you prone to errors if you don’t understand the details. For example, failing to rollover your 401k plan correctly can trigger a taxable event, causing unnecessary tax liability. To ensure you haven’t missed any steps up to this point, download your Free Retirement Checklist. Let’s go through each area of your plan and discuss the logistics of implementing your retirement plan, keeping in mind that you’ll want to work with your team as you do.

Cash Flows

For most Americans, Social Security is the most common fixed income source in retirement. Once you have determined your Social Security strategy and the age you plan to begin drawing your benefit, it’s time to head to the nearest Social Security office or file for benefits online. Make sure that you have looked at each spouse’s benefit if you are married.

If you are eligible for a pension benefit, you should have already received a pension benefit statement from your employer outlining all of your options. The next step, if you haven’t already done so, is to follow the steps in my previous article, “Creating Your Retirement Plan to determine which benefit you will be electing. Then it’s time to complete your pension benefit election form. If you have elected a lump sum benefit, make sure you have the receiving custodian’s information and account number readily available. If you are taking an income stream, make sure that you are 100% confident in your decision, since it is often irrevocable.


I’ve explained how important it is to identify your annual shortfalls and determine where you draw income from. Once you’ve done so, the next step is to establish a systematic withdrawal to replace your employment income. You should determine whether you will draw your income annually, quarterly or monthly – it’s entirely up to you. Next, obtain a systematic withdrawal form from your custodian to establish your desired payout from each account and ensure there is enough cash in the account for your distributions. Also, if you are over the age of 70 ½, it is your responsibility to satisfy your required minimum distribution from your tax-deferred retirement accounts. Failure to do so results in a 50% penalty of the total RMD amount, which is just under 4% of the balance of all of your tax-deferred retirement accounts at age 70 1/2!

As we reviewed in “Creating Your Retirement Plan,” taxes are at the center of nearly all of your financial decisions and your tax situation can change substantially when entering retirement. When you are employed, you have to elect tax withholdings from your paychecks so that you are paying federal and state taxes as you earn income. During retirement there is no paycheck to withhold taxes from so you are required to pay estimated quarterly taxes on your own. Taxpayers must generally pay at least 90 percent of their taxes throughout the year from withholding, estimated tax payments or a combination of the two. If they don’t, they may owe an estimated tax penalty. Work with your tax preparer or financial planner to discuss your anticipated tax liability for the year and establish your quarterly payment schedule.

Calculating taxes in retirement


Most retirees have multiple investment accounts at different custodians, which complicates investment management. It’s better to open accounts at one custodian and consolidate all your accounts together by type. For example, you would rollover your 401ks and IRAs into one IRA Rollover account. This simplifies management and consolidates paperwork and tax reporting, making your job easier. Some common forms that you’ll need upon retirement to implement your investment strategy are:

  • New Account Forms
    • Individual/Joint Account
    • Trust Account
    • Traditional IRA
    • Roth IRA
  • Transfer Forms
  • Rollover Forms
  • Beneficiary Designation Forms
  • Systematic Withdrawal Forms
  • ACH Forms (links your brokerage and bank accounts)

Rolling Over Qualified Retirement Plans

When rolling over your 401k or any type of employer-sponsored plan, it is highly important that you request a direct rollover. With a direct rollover your retirement account administrator sends you a check made out to the new IRA custodian “for the benefit of you.” If the check is directly paid to you instead of the custodian, this constitutes an indirect rollover and a 20% federal withholding will apply and a 60-day window to deposit the check into an IRA begins. If you fail to deposit the check within the 60-day window, the entire distribution will become taxable to you. To put that in perspective, if you had a $1,000,000 401k, you could lose as much as half of it to federal and state taxes (if your state assesses income tax). You can see how one seemingly minor mistake with these types of transactions can derail your retirement plan.

A few other considerations need to be made when rolling over a 401k and other qualified plans. The first is to identify whether you have you have any after-tax contributions in your retirement plan. These contributions occur if you have ever contributed more than the maximum annual defined contribution limit allowed by the IRS. This means that you have money that has already been taxed in addition to your pre-tax balance. When you request your direct rollover from your administrator, you will want to request two checks: one for the pre-tax balance to be deposited in your IRA Rollover and another for the after-tax balance to be deposited in your Roth IRA. If you fail to get two separate checks and the entire amount is deposited to your IRA Rollover, you will have lost out on all of the future tax-free growth on the after-tax balance.

Lastly, if you have large amounts of company stock in your retirement plan with a low cost basis, you may want to consider the net unrealized appreciation strategy (NUA). NUA is the increase in value of employer stock while held in a qualified retirement plan. The Internal Revenue Code (IRC 402) allows employees to take a lump-sum distribution of their qualified plan, pay ordinary income tax on the cost basis, and then pay long-term capital gains on the growth. Anyone who holds large amounts of company stock in their qualified plans should evaluate an NUA strategy.

After all of your accounts are established and monies have moved into the proper accounts, it’s time to establish your asset allocation . By now, you should have determined the weighting of each asset class in your portfolio and which investment vehicles you plan to purchase. If you are purchasing funds, you must take the dollar amount of each asset class and divide it by the price of the fund you plan on investing in. The result is the number of shares that you should purchase, but make sure to include the cost of any trading commissions in your calculation. In my last article , I explained a concept called asset location, a strategy that takes advantage of this tax treatment by placing asset classes in the accounts that will optimize tax-efficient growth. While beneficial, this portfolio management strategy can prove to be tedious for the self-directed investor in regards to your retirement plan, but may be available to you through your financial advisor.

Wealth Protection Transfer

After conducting all of your insurance analyses, you can now execute your insurance action plan. Insurance is a complex arena and insurance products are constantly changing. It’s recommended that you work with an insurance professional to purchase or make changes to existing insurance policies. If you work with a financial planner for your retirement plan, it’s a good idea to keep them involved in the process. They know your financial situation best and can ensure that you purchase the most cost-effective products that fit your needs. Be wary of insurance agents and brokers that try to sell you products just to generate commissions. Insurance policies that may need changes upon retirement include:

  • Life Insurance
  • Long Term Care Insurance
  • Disability Insurance (if a spouse is working)
  • Homeowner’s insurance
  • Renter’s Insurance
  • Auto Insurance
  • Umbrella Insurance
Wealth protection

Finally, you will want to conduct a review of all of your accounts at all financial institutions and deeds of trust for any real estate properties. When you opened your new accounts at your custodian, hopefully you have titled your accounts and designated your beneficiaries appropriately. If you haven’t gotten around to obtaining a properly executed estate plan, it’s better late than never. While there are online services available that allow you to draft these templates on your own, I would recommend seeking the guidance of an estate planning attorney. Legal and tax law are too complex to attempt drafting your own document that will stand in a court of law. I recommend contacting a few estate planning attorneys and choosing the one that you are most comfortable with to draft your living trust, will, and powers of attorney for health and finance.

In summary, implementing your retirement plan is an important process and making mistakes can have huge consequences, such as the example of processing a rollover incorrectly. You want to make sure you are confident in your ability to properly manage your investment portfolio, while being aware of potential tax-distribution strategies from your qualified plans. If you are feeling overwhelmed or are not sure how to approach implementation of your retirement plan, download your Free Retirement Checklist. If you still feel like you might need some assistance, then reach out to a fee-only advisor to determine whether you are headed in the right direction or if you may need some professional assistance.