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What’s New In Retirement Planning for 2021?

By Peter Rekstad

Most people look forward to retirement and achieving their retirement goals, such as moving to a warmer climate, traveling more, or spending extra time with friends and family. People often need to begin planning years in advance to achieve those retirement goals.

While your goals may not change as you approach retirement, how you get there may need adjusted as you get closer to this next chapter in your life. We like to share updates on any recent tax or legislative changes that may impact their current plan as we help our clients prepare for retirement.

Retirement Contribution Limits for 2021

Each year as you get closer to retirement age, you plan on increasing your retirement contributions to certain retirement accounts based on IRS adjustments. The idea is you want to maximize your contributions allowable under the law. However, you may have noticed that many of 2021’s benefit limits are the same as last year’s limits.

Retirement Benefit Limits
Retirement Benefit Limits
Source: IRS

Modified Adjusted Gross Income (MAGI) Limitations for IRA Contributions saw a modest increase for 2021.

Modified Adjusted Gross Income (MAGI) Limitations for IRA Contributions
Modified Adjusted Gross Income
Source: IRS

The SECURE Act

The “Setting Every Community Up for Retirement Enhancement Act” was attached to a fiscal year 2020 appropriations bill and was passed by Congress in late December 2019. The Act represents one of the more significant pieces of retirement legislation to be passed over the last decade, with several notable changes.

Select Provisions for Individuals:

Select Provisions for Individuals

The “Stretch IRA”

The SECURE Act largely eliminated the “stretch IRA” as most beneficiaries will now be required to fully withdraw inherited retirement account assets within 10 years of the account owner’s death, whereas previously such beneficiaries could take withdrawals based on their life expectancy.

Many future heirs of IRAs, such as grandchildren, will be required to drain the accounts within 10 years of receiving the IRA, but some individuals will still be able to stretch payouts over decades.

Who is still eligible for the longer payout period:

  • Heirs of IRAs whose original owners died before 2020
  • Surviving spouses
  • Chronically ill or disabled heirs
  • Heirs within 10 years of age of the original owner
  • Minor children of the account owner, up to the age of majority or age 26 if the child is still in school; at that point, the 10-year payout begins.

Sources: The Wall Street Journal, SECURE Act, Ed Slott

Note: Beneficiaries do not need to withdraw inherited assets each year over the 10-year period. As such, beneficiaries may consider deferring withdrawals until a given tax year when taxable income will be lower.

Our 2021 Financial Planning Guide features up-to-date information on retirement planning, saving for education, risk management, tax planning, and more. We invite you to download a copy and contact us if you have questions about how we can help you wherever life and wealth intersect.

This report is intended for the exclusive use of clients or prospective clients of TruNorth Wealth Partners. The information contained herein is intended for the recipient, is confidential and may not be disseminated or distributed to any other person without the prior approval of TruNorth. Any dissemination or distribution is strictly prohibited. Information has been obtained from a variety of sources believed to be reliable though not independently verified. Any forecasts represent future expectations and actual returns, volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is a possibility of a loss.