Could Your IRA Use More Love Next Year Due to the Pandemic?

In late July, Republican senators introduced legislation that would allow people to make catch-up contributions to their IRA, 401(k) and similar retirement accounts in 2021 and 2022, should they be unable to make full contributions this year. The bill, called the “Addressing Missed-savings Opportunities for Retirement due to an Epidemic Act” (AMORE Act) was introduced by Senators Ted Cruz, Thom Tillis, David Perdue, and Kelly Loeffler. It is designed to help individuals facing financial challenges resulting from COVID-19.

Usually, catch-up contributions are for workers age 50+ who wish to contribute more than the standard limit to their qualified retirement account; for 2020, the standard Traditional/Roth IRA contribution limit is $6,000 a year and the catch-up limit for individuals aged 55 and older is $7,000. However, with millions of Americans unexpectedly unemployed or working at reduced hours and/or wages due to the COVID-19 pandemic, the AMORE Act recognizes the challenges in maintaining their retirement savings goals.

The legislation will allow Americans with IRAs and other qualified retirement plans to catch up on their savings as the economy—and their financial situation—recover. Individuals would be allowed to make the catch-up contributions in 2021 and 2022 equal to the difference between their actual contributions for 2020 and current federal limits on these accounts.

For example, Judy is 45 years old and has contributed $5,000 so far to her IRA this year; she won’t be able to contribute any more in 2020 due to being furloughed. However, under the AMORE Act, she would be able to make a catch-up contribution in 2021 and 2022 for any unused contribution in 2020 – in Judy’s case, an additional $1,000.

Here’s another way to catch up: self-direct your IRA

Self-directed investors—that is, individuals with a self-directed IRA—have the ability to include many nontraditional investments within their retirement plans, such as real estate, private equity, notes/loans, social causes, and more. Self-direction provides a hedge against stock market volatility, allows individuals to diversify their retirement portfolios, and gives way for better control over their earnings – which could be seen as another form of a “catch up.”

These types of accounts are ideal for investors who already know and understand alternative assets and might already be investing in them outside of their existing retirement plan. Self-directed IRAs come with the same tax advantages as their regular counterparts, so investors can grow their retirement savings either tax-deferred or tax-free, depending on the type of plan.

If you’d like to learn more about self-direction and its benefits, we encourage you to schedule a complimentary educational session with one of our knowledgeable representatives. Alternatively, you can contact our team directly for answers to your questions about self-direction as a retirement strategy. You can reach us via phone at 888.857.8058 or via email to NewAccounts@NextGenerationTrust.com.

Baby Boomers Beware – Retirement Approaches: Are You Financially Prepared?

According to a study by the Insured Retirement Institute in April (Boomer Expectations for Retirement 2018), 42 percent of baby boomers have nothing saved for retirement.

Even the very youngest of this cohort, who are about a decade from retirement age, do not have enough savings for retirement. And, among baby boomers who do have retirement savings, 38 percent have less than $100,000 saved for retirement. As we have highlighted in other articles, this is not nearly enough to cover living expenses throughout a long retirement horizon… especially when you factor in health care costs.

The study also revealed that among baby boomers:

• Only 38 percent have calculated the amount they will need to retire
  • Forty-six percent of boomers expect they will need $45,000 (in current dollars) or more in annual retirement income.
  • Assuming the current average Social Security benefit of $16,848 annually, an individual would need to generate at least $28,152 in additional annual income from a combination of pension benefits and retirement savings to meet that figure.
• Only 25 percent believe that they will have enough money in retirement
• And only 28 percent believe they are doing (or did) a good job financially preparing for retirement

Given these statistics, it’s no surprise that 29 percent of those surveyed expect to work past age 70. With the “gig economy” on the rise and a lack of employer-sponsored retirement plans, the problem is likely to grow unless workers open a retirement plan and contribute on a regular and disciplined basis.

Create a retirement savings boom through self-direction

For baby boomers who are comfortable making their own investment decisions, especially those on the younger end of the boomer generation, they could close that savings gap with a self-directed retirement plan. By building a more diversified retirement portfolio through nontraditional investments, and by taking advantage of the catch-up contributions for investors ages 55 and older, financially savvy baby boomers can take control of their future now.

If you are a younger member of the baby boomer generation and are already investing in alternative assets outside of your existing retirement plan, opening a self-directed IRA could be a great way to grow your retirement nest egg. Next Generation Trust Company has all the information and forms you need to get started, and our helpful professionals can answer your questions about self-directed IRAs and the types of investments these plans allow. Plus, they’re always here to guide you along the way. Contact Next Generation at Info@NexGenerationTrust.com or 1-888-857-8058 to find out more about putting some boom into your retirement plan today!