YFP 138: What You Need to Know About Retirement Accounts in 2020

What You Need to Know About Retirement Accounts in 2020

Tim Baker, our own fee-only CERTIFIED FINANCIAL PLANNER™, joins Tim Ulbrich to talk about key retirement and tax numbers for 2020 and the SECURE Act.

Summary

There have been several changes to retirement account contribution limits for 2020. In addition to these changes, the SECURE Act was passed at the end of 2019 which also carries several changes that affect retirement savings. On this episode, Tim Ulbrich and Tim Baker dive into some of these changes.

Although the increase in contribution limits is small, this will hopefully allow pharmacists the opportunity to save a larger portion of their salary to meet their retirement savings goals quicker. To start, 401(k), 403(b), Thrift Savings Plans and most 457 plans have an increased contribution limit of $19,500 with a catch up amount of $6,500. IRA accounts are typically used to supplement 401(k) or 403(b) accounts. While the contribution limits for 2020 are the same, what’s changed is the phase out numbers. Those filing married filing jointly aren’t eligible to contribute to traditional IRAs after earning a modified AGI of $206,000 and for those that are single that eligibility ends at a modified AGI of $75,000. There have also been changes to the Roth IRA and HSA deduction limits.

Tim and Tim also discuss the SECURE Act (Setting Every Community Up for Retirement Enhancement) which is effective January 1, 2020. This act carries several changes in retirement taxes, but three main changes are the change in the required minimum distribution age (RMD) to 72 years old, the elimination of an age limit for traditional IRA contributions and access to retirement benefits for part-time workers. Tim and Tim also discuss changes in 529s and the requirement for plan administration to offer projections for lifetime income and nest egg information.

Mentioned on the Show

• 2020 Key Retirement Tax Numbers to Know – Download the Free Guide
• Send in Ask a YFP CFP® questions here or to [email protected]
• APhA2020
• YFP 072: Investing Mind Tricks: How Behavioral Bias Affects Our Decisions
• YFP 073: How to Determine the Priority of Investing
• YFP 074: Evaluating Your 401(k) Plan
• YFP 075: DIY, Robo or Hire a Planner?
• YFP 076: Investing Rapid Fire Q&A
• YFP 096: How to Do a Backdoor Roth IRA w/ Christina Slavonik
• 2020 Contribution Limits for 401(k), 403(b), Most 457 plans, & TSP
• 2020 IRA Contribution Limits
• YFP 019: How Do Health Savings Accounts (HSA) Fit into a Financial Plan?
• TD Ameritrade: Retirement Changes Coming, Courtesy of the SECURE Act: 5 Things You Should Know
• YFP Planning
• 401(k) Calculator

Episode Transcript

Tim Ulbrich: Hey, what’s up, everybody? Welcome to this week’s episode of the Your Financial Pharmacist podcast. Tim Baker is back on the mic to join me as we nerd out for a little bit about changes to retirement accounts in 2020 and the recently enacted SECURE Act, including what you should know and the implications this may have on your retirement savings strategy. Tim Baker, welcome back.

Tim Baker: Hey, Tim. What’s going on?

Tim Ulbrich: What’s new and exciting in Baltimore?

Tim Baker: Oh man, just living the dream, yeah. I feel like I’ve been awhile since I’ve been on the podcast. I feel like I keep saying that. But yeah, things are good. Family’s good, good Christmas. And what’s good on your end?

Tim Ulbrich: Going well. I can’t complain. Excited to have you back on the mic. I know we’ve been doing the Ask a YFP CFP segment. We’ve been bringing you on, and we would encourage our listeners to continue to submit questions if you have them. That’s been fun. But exciting year ahead, looking forward to the American Pharmacists Association meeting coming up. Hopefully we’ll see many of our listeners out there as well in your backyard in D.C. So it’s going to be a fun year. We’ve got a lot of exciting things planned for YFP. OK, so we’re going to tackle, as I mentioned in the introduction, these important updates as it relates to retirement contributions in 2020, the SECURE Act. So first, let’s talk about changes to retirement savings contribution limits. And we’re going to nerd out a little bit here on numbers, but we’ll link in the show notes to some articles that if our listeners want to go back and see these numbers, reference tables, they can do that easily without having to worry about jotting them down or hearing them and remembering them. So we’ll go through that, and then we’ll dig into the SECURE Act a little bit further. So here we are, a new year, 2020, which means new limits on retirement savings accounts. And while we’re not going to in this episode dig into the ins and outs of investing, including terminology, how to prioritize savings, we did already talk about that in detail in our investing month-long series in November 2018, which included episodes 072, 073, 074, 075, 076. And we’ll link to those in our show notes. So Tim Baker, let’s start with the changes to 401k, 403b, Thrift Savings Plan and most 457 plans, which for the sake of our discussion, we’re going to group those together. So refresh our memory on how these accounts work and then the changes to contribution limits on those accounts in 2020.

Tim Baker: Yeah, so most of us have the 401k, a 403b, if you’re a Tim Church of the world and work for the VA or the government, the TSP, the Thrift Savings Plan. These are retirement plans that are typically sponsored by the employer. And the 2019 limits were $19,000. Going forward in 2020, they’re actually $19,500. And the catchup limits if you’re out there and you’re age 50 and older, the catchup limit after you’ve reached that age goes from $6,000 to $6,500. So again, these are typically the contributions that are coming out of your paycheck that get automatically contributed into this account and then invested for the purposes of retirement. So a little bit — and these get adjusted pretty regularly. I feel like when I was studying for the CFP way back when, these were in the $17,000 or $18,000.

Tim Ulbrich: Yeah, I remember that.

Tim Baker: And then they creep up. And it’s just kind of to account for inflation and that type of thing.

Tim Ulbrich: Yeah, and I think this number is important. So we’re talking about $19,500, obviously we’re talking about pre-tax savings here. So these are going to be taxed later on at the point of distribution. And we’ll talk about required minimum distributions here in a little bit as we talk about the SECURE Act. But I was thinking about this this morning as I was driving in, Tim, $19,500. While that may seem like an insignificant jump from $19,000, if you look back to when they were in the $17,000s — and I also think about this in the context of pharmacists’ salaries that are remaining somewhat stagnant or even in some spaces getting adjusted down, I think that these numbers continue to go up. And we’ll talk about the same thing on the IRA side. What this means for pharmacists is likely, in many cases perhaps, a greater opportunity to save a greater percentage of their salary if that’s something that they’re able to do. And just to refresh our memory, this does not include employer matches, correct?

Tim Baker: Correct. This is just your own contribution through your paycheck. It does not include what an employer matches. So that limit is actually much, much higher.

Tim Ulbrich: OK. So $19,500, as I mentioned just a few minutes ago, we’re not going to talk in this episode about the priority of investing, whether that be 401k, a 403b, or should you be putting money in an IRA? But we did talk about that back in the fall of 2018. OK, so what about IRAs, Tim? Give us again a brief overview of IRAs, the limits that we’re seeing for 2020 and the catchup provisions as well.

Tim Baker: Yeah, so the IRAs are pretty stagnant. So just to back up, the IRA is typically what you use to supplement what you’re putting into your 401k, 403b, so it’s something that you typically open up yourself, either at a Vanguard or Fidelity, a TD Ameritrade, and basically set it up and fund it yourself. Or you can do it through a financial advisor as well. The amounts are pretty much the same from 2019 to 2020. It’s still $6,000 that you can contribute into a traditional IRA and a Roth IRA in aggregate, meaning if you put $4,000 into a traditional, you can only put $2,000 into a Roth IRA. And just to back up a little bit further, Tim, just when we think of Roth, a Roth IRA, we think of after-tax. So typically, the example is if you make — and we’ll use lower numbers because of the number phase out — but if you make $50,000 and you put $5,000 into a Roth IRA, you’re taxed on $50,000. You get no deduction. If you make $50,000 and you put money into a traditional IRA, it’s as if you’re taxed on $45,000. So your taxable income goes down. So that money inside of the IRA grows tax-free. And then when it comes out, if it’s a traditional, which it hasn’t been yet taxed, it gets taxed. If it’s a Roth, which has already been taxed going in, it doesn’t get taxed. So the thing to remember is it’s either taxed going in or taxed going out. The growth it enjoys in the middle, in the actual pot, is tax-free. So the numbers are the same between 2019 and 2020. What is a little bit different are the phase-outs. So those inch up a bit. So as an example, if you’re a single individual in 2019, if you made $64,000-74,000 in Adjusted Gross Income, the deduction that you would receive would slowly go away. And then anything over $74,000, you would get no deduction. For 2020, that goes up $1,000, so now it’s $65,000-75,000. So typically the people that I’m talking to that still get a traditional IRA deduction are you students, residents, fellows out there that are going that route. And then same thing with on the Roth side of things. So once you make a certain amount of money, you can’t even contribute to the Roth. And that’s where we can kind of talk about the back door Roth conversion. So for 2019, for a single individual, once you made $122,000-137,000, it would start to phase out the contribution that you could make in there. Once over — and now in 2020, it goes from $124,000-139,000. So it goes up a touch. So if you’re in that low $120,000s, you can still put money into a Roth. But if you start creeping up to that number, then obviously the door slams shut and then we typically do a non-deductible traditional contribution that we bought back door into a Roth. So — and we’ve done, I think we’ve done podcasts on that before, I think Christina and I.

Tim Ulbrich: Yeah, we have. Episode 096 with Christina Slavonik, How to Do a Back Door Roth IRA, so I would point you to that episode. So just to summarize, Tim, contribution limits for IRAs remain unchanged from 2019 to 2020, $6,000 in 2019, $6,000 in 2020. But what we did see is some changes to the income limits going up in terms of where those phaseouts and contributions are allowed. So we’ll link again in the show notes to some articles of tables that you can look at those in more detail. So if we put the two of these together, Tim, we know for many pharmacists, you know, they’re thinking about saving for retirement in the context of a 401k, 403b, TSP, 457, as well as an IRA. So now between the two of those, excluding the employer match portion of a 401k, 403b, we’d be looking at north of $25,000 that they’re able to contribute between those. So not too bad, right?
Tim Baker: Yeah. And the other thing that we haven’t talked about that’s worth mentioning is the HSA. So the HSA has changed a bit, you know, for — this is assuming you have a high deductible health plan, you can couple that with a Health Savings Account, which for a single individual, the contribution amount moves from $3,500 to $3,550. So a little bit. And then the minimum annual deductible moves from $1,315 to $1,400. And then for a family, it’s $7,000 to $7,100 and then the deductible moves from $2,700 to $2,800. So that is, again, we’ve talked about that I think at length before. That’s the black sheep of all the different accounts out there because it has that triple tax benefit, which is a really nerdy way to say it goes in tax-free, it grows tax-free, and then it comes out tax-free if it’s used for qualified medical expenses or once you reach a certain age, you can use it for whatever you want. And the nice thing about that, Tim, is that it doesn’t matter how much money you make. You could make $50,000 or $50 million. You still get that deduction, that $3,550/$7,100 deduction.

Tim Ulbrich: Yeah, an extra $50 or $100, you know, matters, right? So from $3,500 to $3,550 for individuals in 2020, and up from $7,000 to $7,100 for individuals that have family high deductible health plan coverage. So we talked about HSA, we’ve talked about IRAs, we’ve talked about the 401k, 403b’s, etc. And so again, I think the take-home point here is making sure people are aware of what these contribution limits are, how they’ve changed, and what opportunities they have for them because ultimately, as we think about prioritizing savings and how this fits in with the budget and where you’re going to allocate your dollars, these three buckets typically are a big part of the long-term savings strategy. And really taking the time to say OK, among all of these priorities, these options that I have available here, obviously you’ve got other options in the brokerage market as well, what am I going to be doing in terms of savings? And which of these do I have available to me? And we know that HSAs aren’t available to everyone, but it seems to be we’re seeing this certainly is a growing area. And I would reference our listeners all the way back to Episode 019, where we talked about how HSAs fit into the financial plan. Obviously, the numbers then were different than what we’re talking about here. But the concept of the HSA remains the same. OK, so that’s Part 1 where we wanted to talk about the 2020 contribution limits and the changes and make sure our listeners are ready. One thing I want to ask you, Tim, before I forget and we jump into Part 2 here and talk about the SECURE Act, remind us of the timing of when those contribution periods end. So end of calendar year, going up until the tax limit deadline of April 15, so when — what is the timeline if somebody is listening who said, “You know what? I could have contributed $6,000 in a Roth at the end of 2019, but I only did $5,000. And here I am at the end of January. What options do I have?”
Tim Baker: Yeah, so for most of these retirement plans — not necessarily the 401k, the 403b, but for the IRAs — you can contribute all the way up until April 15 of this year for 2019.

Tim Ulbrich: Yep.

Tim Baker: Now a callout here because I’ve seen this with our own custodian who we manage client accounts with, and I’ve actually seen it when I logged into a client’s Betterment account here recently because we were in the process of moving that over. It’s kind of a weird thing, so I would caution — or I’d have our listeners look at this is the — when you turn the calendar — so let’s pretend, Tim, that you have at the end of 2019, you have $4,000 into your 2019 IRA contributions. So you still have $6,000 to go, right?

Tim Ulbrich: Yep.

Tim Baker: When the calendar turned — I’m not sure because I don’t know all the custodians — that January contribution actually gets counted towards 2020, which makes no sense at all because most people, the reasonable thing is like OK, fill the 2019 bucket before you start doing 2020. So you actually have to go back to the custodian, like Betterment or in our case, TD Ameritrade, and say, “Hey, let’s backfill that bucket that we still need to kind of top off before we go into 2020.” So it’s just one of those things that we have this first quarter of sorts to finish off our contributions. But the logic in a lot of these — you know, the way we contribute to our IRAs is just flawed, in my opinion. And I’ve seen this pop up a few times. So definitely something to kind of call out if you are doing this on your own.

Tim Ulbrich: So is the suggestion there then they reach out to the custodian and make sure that gets allocated correctly?

Tim Baker: Yeah. Like to me, and to me, it’s like something that I, I’m kind of talking to TD and some other institutions like why is this a thing? You know, 99 out of 100 people I would think would say, OK, if I still have 2019 contributions to make, it should be coded — I’m not a developer — but it should be coded as such as a default. So what I do is I would log in and typically, when you log in, you can see your contributions year-to-date, and it will show you basically in this period of time, it will show you your 2020 contribution, which should read $0, and your 2019 contribution, which should be — if it’s not $6,000, you should still basically backfill that until you go to 2020. It’s just this weird quirk that — and I kind of expected more from Betterment because they’re a newer kid on the block, and it was just one of these weird things that’s off. So to me, it’s use all of that up before you go onto the kind of the current year.

Tim Ulbrich: Come on, Betterment. We expect more. No, I’m just kidding.

Tim Baker: I know, I know. I don’t know, we’ll probably get a letter from them, like an angry letter.

Tim Ulbrich: Yeah, I’m sure. Yeah. Alright, let’s jump into the SECURE Act. We’re going to continue to nerd out a little bit here as we transition from numbers to talking about some recently enacted legislation that has fairly significant implications.

Tim Baker: Yeah.

Tim Ulbrich: And really a shoutout here to Tim Church, who kind of brought this forward to say, hey, we need to be talking about this. There’s some really unique provisions in here that may apply directly to our audience or at least to be aware of as we think about retirement saving strategies for the future. And I think in the midst of end of year, as this was passed at the end of December, obviously we’ve got a lot going on at the federal level that I think is drawing attention away from things like this. I think it got lost in the mix. So let’s talk for a moment, Tim, just start with what is the SECURE Act? And then we’ll talk about specifically some of the major changes that may be of interest to our audience.

Tim Baker: Yeah, so the SECURE Act stands for Setting Every Community Up for Retirement Enhancement, SECURE Act of 2019. These acronyms kill me. And being former military, I can appreciate a good acronym, but come on. So this is really the second piece of major legislation in the last 24 months, the first being basically the Trump tax code, the Tax Cut and Jobs Act, which had pretty fairly sweeping changes. And this is really — you typically don’t see this in a 24-month period. These typically happen over decades. And when we actually dug into the Act, pretty significant. This was passed by the House I believe in May. And then language in the Senate, and we kind of thought it would be buried. But in kind of the final days of the year, I believe it was passed on the 20 of December. It became law and actually became effective on January 1 of this year. So I was caught a little bit off guard, to be honest, about the big change. And I had heard about it and was kind of following it from a distance. But when it actually came through, I was actually surprised because obviously, with everything going on Capitol Hill, it’s just a lot swirling around. And they were able to actually get something done.

Tim Ulbrich: Well, and I think to be fair, like things don’t typically move this quickly, right? So we see something that passes December 20, 2019, and then with a couple exceptions here, really the Act is effective January 1, 2020, although some of the pieces are coming further behind that. But I think there’s some major, major things in here. And we’re not going to hit everything about the SECURE Act or we would I think put our audience to sleep, perhaps induce a couple car wrecks for those that are driving. So we’re going to hit the high points. We’re going to link in the show notes to some additional information that our listeners can go learn more about this. So please don’t interpret that we’re talking about every single piece of the SECURE Act. But why don’t we start, Tim, I think what really got a lot of press, even though it may not apply directly to where our audience is today, is around the changes in the required minimum distribution age. So talk to us about what that is. It’s not a concept we’ve talked a lot about on the show. And then what were some of the changes that happened related to that distribution age from this Act?

Tim Baker: Yeah, so — and I have a pretty, I want to say a pretty great graphic that I designed way back when that I sometimes will dust that off. But to kind of talk about RMDs, so — and maybe we need to post that somewhere. But so an RMD, a Required Minimum Distribution, is basically — so let’s pretend, Tim, you have a bunch of retirement accounts. And you have $1 million in a 401k, $1 million in a traditional IRA, and $1 million in a Roth IRA. How much money do you actually have? The answer is not $3 million, unfortunately because those — the traditional IRA and the 401k are all basically pre-tax dollars. So Uncle Sam has yet to take the bite of the apple. So when that gets distributed, they basically take their taxes. So in those $1 million accounts, if you’re in a 25% tax bracket, you get to keep $750,000. And then they keep $250,000. The Roth IRA, because it’s gone in after-tax, it goes free. It comes out tax-free. So after awhile, you know, after you work and you retire and you reach 70.5 years old, the government raises their hand and says, ‘Hey, Tim Ulbrich, remember all those years when we allowed you to basically have that money grow tax-free? We want our piece. We want our piece of the apple.’ So what they do is they force a required minimum distribution, which it looks at the balance of the account and then a ratio based on your age, and it applies it to that. And let’s say the first year, when you’re 70.5 years old, you have to distribute $2,000. And then every year, it gets bigger.

Tim Ulbrich: So it’s a forced contribution — or a forced withdrawal, right?

Tim Baker: It’s a forced withdrawal, right. So then you can invest that somewhere else or spend it or whatever. But for a lot of people that are like, oh, I don’t really want to use this money. I want to keep it growing so it kind of can be a disruptor, especially if we’re moving retirement to the right, which we’re seeing. So the big change, which is — I think it’s really a minor change because I think like it’s something like only 20% of the people are actually being forced to take RMDs. Most people are spending it down before that. I believe that’s the number. It moves from 70.5 years old to 72 years old.

Tim Ulbrich: OK.

Tim Baker: So they give you a little bit more runway on the back end to not have to touch those kind of those pre-tax accounts, which is typically the IRA, the 401k, 403b, that type of thing.

Tim Ulbrich: So it gives you an additional year and a half to let that money sit and grow before you have to take those forced withdrawals. But I think this — I’m glad we’re having this discussion because, you know, we talked before in the investing series about some of the strategy around taxable — you gave a great example. You’ve got three buckets of $1 million in a 401k, traditional IRA, Roth IRA, you don’t really have $3 million for those two. Now the third one, in the Roth IRA account, you’ve got $1 million there.

Tim Baker: Yeah.

Tim Ulbrich: And I think that’s one of the other advantages of a Roth account is you don’t have a required minimum distribution age, if my memory serves me correctly.

Tim Baker: Correct. Yep.

Tim Ulbrich: So you know, again, if we think about what’s happening to lifespans and as you think about where you’re at in your retirement savings and the potential whether you will or will not need that money at that age, I think that’s a really important consideration as we think about retirement savings strategy. Even though this year and a half may not be, you know, something that is monumental, I think it’s just a good reminder of how we’re thinking about the back end of taxes when it comes to our savings.

Tim Baker: Yeah, I kind of like the — it’s like, to me, it’s like who makes these rules up? It’s like 59.5 years old, 70.5 years old. It’s like, can we just use round numbers please? It’s like what? And again, it kind of is like the theory versus the application. And it’s just — it’s crazy. Yeah, I don’t understand it.

Tim Ulbrich: So in addition to the change in required minimum distribution age, we also saw that there is no longer, with the SECURE Act, no longer an age limit for traditional IRA contributions. So you know, again, obviously it may not be as meaningful for our audience in the moment. But this is really, really significant news in that previously, you couldn’t make traditional IRA contributions if you were 70.5 or older, but that’s no longer the case, right?

Tim Baker: Yeah, and it’s kind of — to me, I’m still kind of unsure how this works because if you think about it, it’s like, so you would basically be able to — now you’re able to contribute that if you’re still working and you have compensation, you can still contribute to a traditional IRA. And before, you couldn’t once you reached age 70.5. So they take that age limit off. I guess the question I have is like, OK, let’s pretend I’m 73 and I’m still working. Do I take a RMD and then just put it right back in?

Tim Ulbrich: Oh, right.

Tim Baker: You know what I mean? I don’t know. And I actually just thought about this now. Before, once you reached 70.5 years old, you typically just put it into a Roth. But again, like the idea is that the government wants you to spend that traditional, that pre-tax bucket down because they want their tax revenue. But I guess you can, I don’t know, maybe you can contribute that? I don’t know, I don’t know.

Tim Ulbrich: Yeah, maybe if we asked the representative that posed that about the age as well as that provision, maybe we’ll get a “I don’t know,” you know?

Tim Baker: Yeah, yeah.

Tim Ulbrich: And talk about that.

Tim Baker: Yeah, so you take the money out and then you just contribute it again? I guess if you have compensation, I guess that’s OK. But yeah, so again, what they’re trying to do — and I think we’re going to see more and more of this because I think the whole of traditional retirement, it’s going to go away. And I think they’re going to — even like the 10% penalties and things like that, I would imagine in 10, 20, 30 years, it’s going to look a lot different.

Tim Ulbrich: I would agree. So third thing here I want to talk about, because I think especially as we’ver seen more pharmacists that are transitioning to part-time work for a variety of reasons, is some interesting changes to your access to retirement benefits for part-time workers. So here we’re talking about employer-sponsored retirement plans. So talk to us about where we’ve been on this — and you know, this was actually kind of new news for me as I got up to speed — where we’ve been and what’s changed here as it relates to part-time workers and access to retirement benefits that are employer-sponsored.

Tim Baker: So one of the ways that a lot of employers are kind of getting around some of the costs of manpower and FTEs is to hire mostly part-time employees. And one of the reasons they could do this is if they had a 401k, you could basically exclude that from as a benefit. So the rule before the SECURE Act was that part-time employees who have worked 1,000 hours or more during the past year must be granted access to the 401k. That rule stays the same with the SECURE Act. The difference is now that part-time employees who have worked more than 500 hours per year for three consecutive years now must be allowed to enter into the 401k. Now, the caveat here, Tim, is that this sounds great. And I think we’re in alignment, obviously we’ve set up our 401k recently at YFP and we’ve included our part-time employees as part of that because obviously this is kind of the stuff that we talk about and we believe in it. The problem with this rule, though, is that the earliest a part-time employee can participate in a retirement plan due to this kind of second three-year rule that’s now still with the 1,000-hour rule doesn’t take effect until 2024.

Tim Ulbrich: Right, because of the delay.

Tim Baker: Yeah, the plans don’t start counting until 2021.

Tim Ulbrich: Yeah.

Tim Baker: So it’s good, but not for a couple more years. So I think we’re heading in the right direction. And again, I think what we’re seeing — and sometimes we hear it on the trail with politicians — is that one of the problems is employers are just hiring temp workers and part-time workers, which — it’s really because of an economics play because the true cost of a full-time employee with health benefits and retirement benefits and all that kind of stuff can be pretty steep. So I think this is a step in the right direction to kind of open up the door for a lot of part-time employees to save for retirement.

Tim Ulbrich: I agree with you. I think it’s a step in the right direction. I think the time period, because of the three years, because this doesn’t start until 2021, I’m a little bit disappointed by that. I mean, to me, this is a sooner rather than later thing. And I think from what I was reading, it looks like there’s still final rules that are in development here. So I think this is a stay-tuned type of thing. And to be clear here, this does not mean that employers have to contribute in terms of a match but rather that they will be required to allow the employer to participate if they meet the requirements that are set forth and that we just talked about.

Tim Baker: Yep.

Tim Ulbrich: And I share — you know, I’m pumped about what we’re doing at YFP in this area and some of our other benefits that we’re offering. I think it’s — it’s fun to be probably one of the most rewarding parts of 2019 is to be thinking about it from an owner’s standpoint of saying, “How do we want to invest in our employees? Why do they matter?” And philosophically, we’ve all been in employee roles and here we now are on the other side of it and how can we enact things that will increase employee satisfaction, retention, or we just feel like is the right thing to do?

Tim Baker: Yep.

Tim Ulbrich: What about — I mean, I think those got a lot of the headlines. What were some other things that stood out to you in the SECURE Act that, you know, might have been or is of interest to our audience?

Tim Baker: It’s funny because I was actually just talking about this. We do — as part of our financial plan, we do like an education presentation. And I’m going to have to go back because I was like prophesizing about, ‘Oh, I think the 529 will look a lot different in the future and blah, blah, blah,’ and I had not dug into the specifics about it yet. But so a little bit of the backdrop is that the Tax Cuts and Jobs Act a couple years ago expanded the use of 529s for K-12 expenses.

Tim Ulbrich: K-12, yep.

Tim Baker: Which was big because basically before that, the 529 was kind of like the retirement account for education where you had this long accumulation phase before your kid was born to 18, and then you would basically decumulate when they went to school. Now, the 529 — and now I say ‘now,’ but a couple years ago when they changed it, it could actually act as a pass-through. So you could put money in to get your state tax deduction and then pay for private kindergarten, first grade, etc. So the further expansion in the SECURE Act, the SECURE Act qualified education loan repayment is that it allows the 529 to basically distribute to make loan payments, which sounds like it would be an automatic thing. You have loans, and we have a balance in the 529, like that should have happened before. But the law basically includes an aggregate lifetime limit of $10,000 in qualified student loan repayments per 529 per planned beneficiary and $10,000 per each of the beneficiaries’ siblings. So again, you know, maybe not like a — I think this is a good foothold, but to me, I don’t think there should be a limit, to be honest. If there’s a 529 balance, put it towards the loans. So now homeschooling expenses still didn’t make the bill. They didn’t make an effort —

Tim Ulbrich: Come on now!

Tim Baker: I know, it’s like, get with the program. So still, that needs to happen. And then the second thing that happened is that, with the 529, it includes expenses for apprenticeship programs now. So if you’re going for an apprenticeship or your kid’s going for an apprenticeship, fees, books, supplies, required equipment, the program does need to be registered and certified with the Department of Labor, but that’s big. And that’s one of the things with a lot of parents that are like, ‘Well, what if little Johnny doesn’t want to go to education — get college?’ And my belief is that still, I think we’re going to keep going in that direction of opening up what the 529 can actually be used for. We just need to. We need to.

Tim Ulbrich: Yeah, that one, although it seems small, got me fired up, you know, in a positive way. I just think that we’re seeing certainly a transition of more people going into trades and other things.

Tim Baker: Yeah.

Tim Ulbrich: And I think from a parent concern, it’s something I think about often that hey, I’ve got four boys and maybe two go to college, two don’t, maybe four don’t, maybe four do, whatever. But to have that flexibility, you know, and that option available I think is huge. And I agree with you, I think we’re going to see more in this area. There were certainly other changes in the SECURE Act. You know, one of the things that stood out to me was a new requirement for plan administrators to offer projections for lifetime income at least once a year, info about the nest egg size, so you know, we might see, individuals might notice some more paperwork and things that are coming as a part of their 401k. But lots of changes here, and I’m glad we were able to talk about these as well as the 2020 changes to the contribution limits in the retirement accounts and the HSA component that we talked about a little bit earlier. So Tim Baker, excited to have you back on the mic. And I think this is a good place to remind our listeners as we’re talking about saving for retirement and new contributions and how do you prioritize these and where does this fit in with the rest of your plan, we offer fee-only comprehensive financial planning at Your Financial Pharmacist. Obviously, you’ve been leading that service for us. And we’ve got some exciting developments coming in 2020 with that. And if you want to learn more about that, YFPPlanning.com, you can set up a call with Tim Baker and see if that’s a good fit for you. And then we’ve also got some great calculators that Tim Church has been working on, one of them around projecting retirement savings and nest egg, so you can find that over at YourFinancialPharmacist.com. As always, if you liked what you heard on this week’s episode of the Your Financial Pharmacist podcast, don’t forget to leave us a rating and review in Apple podcasts or wherever you listen to your podcasts each and every week. Thank you for joining us, and have a great rest of your week.

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