News

30
Dec

SECURE Act To Take Effect

SECURE ActCongress enacted a $1.4 trillion spending package on December 20, 2019. The package includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act overwhelmingly passed the House of Representatives in the spring of 2019 but stalled in the Senate. The SECURE Act is the most sweeping set of changes to retirement legislation in more than a decade.

 

Many of the provisions offer enhanced opportunities for individuals and small business owners. But there is one big drawback for investors with significant assets in traditional IRAs and retirement plans. These individuals will want to revisit their estate plans to prevent their heirs from potentially facing high tax bills.

 

All provisions take effect on or after January 1, 2020, unless otherwise noted.

 

Elimination of the “stretch IRA”

One change requiring urgent attention is the elimination of the “Stretch IRA.” Suppose a non-spouse beneficiary inherited traditional IRA or retirement plan assets. The “Stretch IRA” let him or her spread required distributions and their taxes over their lifetimes.

The new law now requires the beneficiary to liquidate the inherited account within ten years of the account owner’s death. The beneficiary must be 10 years younger than the account owner for this rule to apply. Exceptions apply if the beneficiary is a spouse, disabled or chronically ill, or a minor child. This shorter distribution period could result in unanticipated tax bills for beneficiaries. This is also true for IRA trust beneficiaries, which may affect estate plans that intended to use trusts to manage inherited IRA assets.

 

Traditional IRA owners may want to also revisit how IRA dollars fit into their estate planning strategy. For example, it may make sense to consider the implications of converting traditional IRA funds to Roth IRAs. Beneficiaries inherit Roth IRAs tax free. Roth IRA conversions are taxable events. But investors who spread out a series of conversions over several years may enjoy the lower income tax rates expiring in 2026.

Benefits to individuals

On the plus side, the SECURE Act includes several provisions designed to help American workers and retirees.

 

  • People who choose to work beyond traditional retirement age will be able to contribute to traditional IRAs beyond age 70½. Earlier laws prevented such contributions.
  • Retirees will no longer have to take required minimum distributions (RMDs) from traditional IRAs and retirement plans by April 1 following the year in which they turn 70½. The new law generally requires RMDs to begin by April 1 following the year in which they turn age 72.
  • Employers generally must allow part-time workers age 21 and older who log at least 500 hours in three consecutive years generally to take part in company retirement plans offering a qualified cash or deferred arrangement. Before, the rule was 1,000 hours and one year of service. (The new rule applies to plan years beginning on or after January 1, 2021.)
  • Workers will receive annual statements from their employers estimating how much their retirement plan assets are worth expressed as monthly income received over a lifetime. This should help workers better gauge progress toward meeting their retirement-income goals.
  • New laws make it easier for employers to offer lifetime income annuities within retirement plans. Such products can help workers plan for a predictable stream of income in retirement. Also, employees can transfer lifetime income investments or annuities held within a plan that stops those investments to another retirement plan. The Direct Transfer avoids potential surrender charges and fees that may otherwise apply.

 

  • Individuals can now take penalty-free early withdrawals of up to $5,000 from their qualified plans and IRAs due to the birth or adoption of a child. (Regular income taxes will still apply, so new parents may want to be cautious.)
  • Taxpayers with high medical bills may be able to deduct unreimbursed expenses that exceed 7.5% (in 2019 and 2020) of their adjusted gross income. Also, individuals may withdraw money from their qualified retirement plans and IRAs penalty-free to cover expenses that exceed this threshold. Regular income taxes will apply. The threshold returns to 10% in 2021.
  • 529 account owners can now use these accounts to repay student loans. The limit is $10,000 over the account owner’s lifetime. 529 funds may also now pay for costs associated with registered apprenticeships.

Benefits to Employers

The SECURE Act also helps employers striving to provide quality retirement savings opportunities to their workers. Among the changes are the following:

 

  • The tax credit that small businesses can take for starting a new retirement plan has increased. The new rule allows employers to take a credit equal to the greater of (1) $500 or (2) the lesser of (a) $250 times the number of non-highly compensated eligible employees or (b) $5,000. The credit applies for up to three years. The earlier maximum credit amount allowed was 50% of startup costs up to a maximum of $1,000 (i.e., a maximum credit of $500).
  • A new tax credit of up to $500 is available for employers that launch a SIMPLE IRA or 401(k) plan with automatic enrollment. The credit applies for three years.
  • Employers may exclude part-time employees for nondiscrimination testing purposes of retirement plans.
  • Employers now have easier access to join multiple employer plans (MEPs) regardless of industry, geographic location, or affiliation. “Open MEPs,” as they have become known, offer economies of scale. They allow small employers access to pricing and other benefits often reserved for large organizations. Under old rule, groups of small businesses had to be affiliated somehow to join a MEP.)The legislation also provides that the failure of one employer in a MEP to meet plan requirements will not cause others to fail, and that plan assets in the failed plan will transfer to another. (This rule is effective for plan years beginning on or after January 1, 2021.)
  • Auto-enrollment safe harbor plans may automatically increase participant contributions until they reach 15% of salary. The prior ceiling was 10%.

 

16
Dec

The Ag Economy: Tough Times for Farmers in 2019

Agriculture

Net farm income is forecast to grow almost 4.8% to $88 billion in 2019. But this broad measure of profits includes financial support from the federal government. Projections show direct government payments (excluding crop insurance) to U.S. farmers may hit $19.5 billion in 2019. These are the most such payments since 2005. 1 There are significant regional differences in the economic picture for U.S. farms besides a troubling rise in debt. 2 According to Moody’s Analytics, farm incomes in the Midwest have dropped by more than 30% between the first and second quarters of 2019. Many producers are going out of business. 3

U.S. farm bankruptcies are up 24% for the year (through September 2019). Chapter 12 filings have risen in every region of the United States. More than 40% of farm bankruptcies were in the 13-state Midwest region. There, the total (255) rose to the highest level in more than a decade. 4

The U.S. agricultural industry endured several years of low crop prices. Then, bad weather and an escalating trade war with China inflicted further damage in 2019. 5 

The following text takes a closer look at the obstacles faced by American farmers. It also examines the ripple effects on rural communities and regional economies.

A soggy spring

The potential for damaging weather is a source of uncertainty and stress for farmers. In the spring of 2019, historic rains and floods in parts of the Midwest farm belt delayed the planting of soybeans and corn. These are by far the nation’s top two cash crops. 6

Crop insurance may help some farmers offset their losses. The federal government is a primary funding source for this type of insurance. Crop policies help protect against lost crop yields due to natural causes. If a planting never takes place, “Prevented planting payments” help cover the costs of preparing for that failed planting. For some farmers, these indemnity payments may exceed the financial returns from a poor-yielding crop. As of August 2019, natural causes prevented the planting of 20 million acres. This number is more than double the previous record. 7

AgricultureTrade war casualties

China was one of the top buyers of U.S. farm products from 2009 to 2017. But that was before imports plunged from $19.5 billion in 2017 to $9.1 billion in 2018. U.S. farmers have been contending with retaliatory tariffs since mid-2018. The trade conflict came to a head in August 2019 when China suspended all imports of U.S. agricultural products. 8

Trade talks and purchases of some agricultural products have since resumed. An agreement could provide much-needed clarity. But the longer the trade tariffs remain in effect, the harder it could be to recover the Chinese market share. For now, that market share has shifted to other suppliers. 9

Extra farm aid

In November, Midwest farmers fought an early blizzard to harvest crops they planted late in the spring. Agencies declared agricultural disasters in many counties where extreme fall weather ruined crops. This declaration made affected farmers eligible for emergency loans and other disaster aid. 10 Farmers who were unable to plant their fields, whether insured or not, can also apply for federal disaster funds. The government allocated the U.S. Department of Agriculture $3 billion for national disaster relief. These funds helped cover farm losses caused by hurricanes in 2018 and severe weather in 2019. 11

Trump administration trade aid programs helped farmers affected by tariffs and the loss of export markets. This aid totaled $12 billion in 2018 and another $16 billion in 2019. Farmers could receive direct payments for eligible crops, ranging from $15 to $150 per acre. Aid depended on the impact of trade retaliation in the specific county.12

Moody’s estimates that farmers received a total of about $50 billion in federal financial support. These estimates cover the fourth quarter of 2018 through the third quarter of 2019. 13

Broader economic effects

Production from some 2 million American farms accounts for only about 1% of U.S. gross domestic product (GDP). But the agriculture sector’s total contribution to GDP is much more significant. Related industries that sell and serve food and beverages all rely on farm inputs. 14 These include textiles, apparel, food, and beverages, among others. Farm profitability also affects the earning prospects of large agribusinesses. These businesses supply seeds, fertilizer, and machinery.

U.S. gross domestic product grew at a modest 2.1% in the third quarter of 2019. The drag on the national economy from farm losses may be unnoticeable. 15 Even so, farm-belt states are struggling. When a region suffers large-scale farming losses, it affects local jobs and consumer spending. The losses spread financial hardship in rural communities. The Midwest Economy Index has declined for seven straight months, from April through October. 16 This index tracks nonfarm business activity in five states: Illinois, Indiana, Iowa, Michigan, and Wisconsin.

The economic impact also differs from farm to farm. Payouts from the trade aid program varied. These variations left some farmers more exposed to losses than others. Large farms are also more likely to have the resources to withstand rough patches. Small and midsize farms are more vulnerable than large farms. As a result, current market conditions may result in further consolidation. Big corporations buy farmland from smaller farmers in distress.

Farmers concerned about the financial ramifications of a prolonged trade conflict may have hope. On October 11, the Trump administration reported a tentative “phase one” trade deal. This deal carries expectations of a Chinese commitment to buy up to $50 billion of agricultural products per year. 17 Negotiations are reportedly progressing. But, the final terms and signing date are still unknown.

1, 6, 11-12, 14) U.S. Department of Agriculture, 2019
2, 4, 7) Farm Bureau, 2019
3, 13) The Wall Street Journal, November 13, 2019
5, 8) The Wall Street Journal, August 6, 2019
9) The Wall Street Journal, October 7, 2019
10) UPI, November 13, 2019
15) U.S. Bureau of Economic Analysis, 2019
16) Federal Reserve Bank of Chicago, 2019
17) The Wall Street Journal, November 14, 2019
9
Dec

What Will You Pay In Medicare Premiums In 2020?

2020 Calendar

Medicare premiums, deductibles, and coinsurance amounts change annually. Here’s a look at some of the costs that will apply in 2020 if you enrolled in Original Medicare Part A and Part B.

Medicare Part B premiums

According to the Centers for Medicare & Medicaid Services (CMS), most people with Medicare who receive Social Security benefits will pay the standard monthly Part B premium of $144.60 in 2020.

You may pay less than the standard Part B premium if you meet the following conditions:

– Medicare deducts premiums from your Social Security benefits

and

– The cost-of-living increase in your benefit payments for 2020 will not be enough to cover the Medicare Part B increase.

People with higher incomes may pay more than the standard premium. If your 2018 federal income tax return shows a modified adjusted gross income (MAGI) above a certain amount, a higher premium will apply. You’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium, as shown in the following table.

Medicare Premiums Table

Other Medicare costs

The following out-of-pocket costs for Original Medicare Part A and Part B apply in 2020:

 

  • Part A deductible for inpatient hospitalization: $1,408 per benefit period
  • Part A premium for those who need to buy coverage: up to $458 per month (most people don’t pay a premium for Medicare Part A)
  • Part A coinsurance: $352 per day for days 61 through 90, and $704 per “lifetime reserve day” after day 90 (up to a 60-day lifetime maximum)
  • Part B annual deductible: $198
  • Skilled nursing facility coinsurance: $176 for days 21 through 100 (for each benefit period)

For more information on costs and benefits related to Social Security and Medicare, visit ssa.gov and medicare.gov.