Hello, everybody, it's Sam from Financial Samurai, and happy 2020. Happy New Year. Can you believe that the decade is over and a new one has begun? I'm pretty pumped. I'm actually really, really pumped. It's kind of like season two of your favorite Netflix show where I'm going to go on this new journey, and I hope you guys go on a great new journey as well and accomplish a ton of stuff.

So there's been a lot of stuff going on since the last podcast, and I just want to do a little recap and also talk about what I plan to do over the next three years. So while we were relaxing and enjoying each other's company and the holidays, the SECURE Act passed.

And I think it's somewhat interesting. It's a net positive for most Americans and their retirement planning strategy at the margin. There are several things you should be aware of. The first thing is the required minimum distribution starts at age 72 from 70 and a half. So that means there's another one and a half years of tax advantageous compounding of your accounts before you have to start withdrawing and therefore before you have to start paying taxes.

So that's pretty good. Given that our population as a whole is living longer, extending the RMD from 70 and a half to 72 makes sense. We should be allowed to have our investments compound tax free for a longer period to pay for our longer lives. So your goal is to amass a large enough taxable retirement portfolio so that you can wait until 72 to withdraw from your retirement funds.

And of course, your goal should be to try to live as long past 72 as possible. The second change due to the SECURE Act is pre-tax contributions can be made to your traditional IRA after age 70 and a half. So that's pretty good as well. But it's kind of like a two-sided coin here.

One, if you're fortunate enough to still have the energy, ability, and desire to still have a W-2 income after age 70 and a half, that's good. Just contribute to your traditional IRA. But if you still have to contribute money to your IRA when you're 70 and a half plus, I think that kind of sucks unless you really, really like your job.

So the maximum IRA contribution for 2020 is $6,000, which is the same as in 2019. I don't know why the government didn't raise that contribution limit as it raised the 401(k) contribution maximum limit to $19,500. The IRA catch-up contribution limit will remain $1,000 for those age 50 and older for a maximum possible IRA contribution of $7,000 in 2020.

The thing that bums me out most about the IRA is that the government still doesn't allow all Americans to contribute to a traditional IRA with pre-tax income. For some reason, it believes that once a single individual makes over $139,000 a year in 2020 for a Roth IRA or more than $70,000 for a traditional IRA, they no longer want or need to save for retirement because the government says they're not allowed.

Well, for a traditional IRA, you can, but it's just not going to be with pre-tax money. And for the Roth IRA, you cannot. And so I just want everybody to realize the weird standards the government is giving to all Americans. I mean, it's as if they believe all Americans face the same living expenses.

Obviously, living in New York City is going to be more expensive than living in Des Moines, Iowa. And what also befuddles me is simple math. If you're a single person and you make over $75,000 a year, you cannot contribute pre-tax money to a traditional IRA. Now if you are married, the limit for contributing to an IRA, the income limit, is $124,000.

So once you make, combine more than $124,000, you cannot contribute to a traditional IRA. But the funny thing is $75,000 plus $75,000 is what? $150,000? Not $124,000. So the government also believes that 1 plus 1 does not equal 2. And it just doesn't make sense. What happened to the equality between man and woman or man and man and woman and woman?

Both people deserve to make their money, have their careers. So the government is always kind of determining the winners and losers. So you just want to be aware of that. A third item the SECURE Act changes is no more stretch IRAs. So what is a stretch IRA? Well it's an estate planning strategy that basically richer people use that extended the tax deferred status of an inherited IRA when it is passed to a non-spouse beneficiary.

Theoretically an IRA could be passed on from generation to generation while beneficiaries enjoyed tax deferred and/or tax free growth. But now that's gone. Under the new law, most beneficiaries will have to withdraw all the distributions from their inherited account and pay taxes on it within 10 years. Exceptions are made for spouses and the chronically ill or disabled.

Now there seems to be some kind of uproar about the elimination of stretch IRA. But I say come on, give me a break. If you are lucky enough to inherit an IRA and not need to use it, you know, after 10 years, you're clearly doing very, very well. So you're basically getting a gift when you don't really need the gift.

So I say hey, you know what, if the government wants the money after 10 years, then so be it. It's fine. You should be talking to an estate planning lawyer and he or she will tell you things that you probably have never considered before like the GRAT. And you should also set up a revocable living trust if you have children.

At the very least, everyone should have a clearly written will and an area where you have all your passwords and usernames because estate planning really is an act of kindness for your beneficiaries who will go crazy if they can't figure things out and will have to pay a lot of lawyer fees to figure out your estate.

The fourth item the SECURE Act introduces are annuity options in your 401k. So annuities like whole life insurance is a very profitable product for financial companies, which is why I think financial companies were more lobbying hard for the SECURE Act to pass. Annuities if you don't know, are insurance products that turn a lump sum investment into a lifetime of guaranteed income.

So besides the hidden cost of owning an annuity, one of the concerns companies had for offering them in a 401k was the viability of the annuity provider. So for example, what if your insurance company went bust or the annuity provider went bust? You may not get what is promised to you.

Think about money. It's just a promise that it's worth something. We think it's worth something, so therefore it's worth something. But one day we might think it's worth crap and money might not be worth anything. And this is why I personally like to buy real assets such as real estate because if everything goes to crap, at least I can go to a property I own and take a crap.

You know, there's a utility there. There's utility and it's just not going to disappear like poof, like many, many paper assets and things did during the 2008 to 2009 financial crisis. So I would say that's fine if there are annuity options, but I wouldn't go about selecting an annuity option.

It's just, I don't think it's a good idea. You lose your liquidity. You lose your flexibility. You don't know what it costs. It's kind of murky. I would just pass. And if you're an employer, I would say you'd be foolish to offer an annuity option in your 401k plan despite the increased legal protection because no employee is going to join an employer or stay at an employer because of its great annuity options in the 401k.

Really more so just do a better match or do some more profit sharing instead. All right, what else? Five, 401k accounts may become more prevalent for part-time workers or employees of small businesses. And this is something I'm most excited about because I believe there is a change in the way we work.

If you think about it, I don't know, going on a 30 minute to an hour commute to an office where you don't really need to be in the office because of technology doesn't make much sense. It's much more efficient to wake up, go to the bathroom, put on your underwear.

Hopefully you already have your underwear on and then get to work on your laptop and you can do teleconferencing and all that. So if more 401k plans are going to be provided to small businesses, that's great for employees of small businesses and I think freelance workers. The SECURE Act now requires employees who offer 401ks to expand its access to part-time workers who work at least 500 hours a year for three consecutive years or 1000 hours for one year.

To put these hours into perspective, a full-time worker who works 40 hours a week will work 2080 hours a year. Therefore working 1000 hours for one year is a walk in the park. We're talking only an average of 20 hour work weeks. So I think that's really, really easy.

So at the margin, the offering of more 401k plans to part-time workers will probably further increase the rise of part-time and remote workers. As a result, I foresee a continued demographic shift towards lower cost areas, which is why I'm diversifying my real estate holdings into the heartland of America.

Your mission, if you choose to accept, is to find part-time and remote work opportunities with employers who offer a 401k plan with a match. Because there is so much dead weight working a full-time job with one employer. Think about all the meetings you have to go to, especially the ones that are meetings about meetings.

Think about the commute. Think about all the distractions. It's much more efficient, I think, to be a freelancer and get multiple clients. Because if you are reasonably efficient, you can make a lot more money. Sixth thing to note about the SECURE Act, 529 plans get more flexible. After the tax cuts and jobs act passed in 2017, owners of a 529 plan could not only use these funds from the plan to pay for qualified college expenses, owners of the plan could also use up to 10,000 of the funds annually for K-12 expenses.

And I thought this was really great, especially for folks living in big cities or coastal cities, maybe where the public school system isn't that well-funded or ranked. So 10,000 a year, that's pretty good. So now with the SECURE Act, a 529 plan can also be used for apprenticeship programs, which is really, really popular in Europe, not so popular in the United States for some reason, and qualified expenses including fees, books, supplies, and equipment.

Further, 529 plan funds can be used to pay for principal and interest of qualified education loans in the amount of $10,000. So the details, I mean everything sounds good, but you gotta look at the fine print before you do anything, as always. But your goal is to have a 529 plan for each kid, if you have kids.

Yes, we all know that a college degree is getting devalued each year, but it's still worth opening up a 529 plan if you have children. You want a little bit of that flexibility, your contributions will grow tax-free, and if you don't end up using all the funds, you can change the beneficiary over to someone else.

It can be another sibling, or it can be a grandchild, know the details, but it's not like you're stuck and uh-oh. You want to be efficient in terms of saving for retirement and saving for your children's future as possible. Finally, there's something good for folks who just had a baby or just adopted.

Bless you folks who have adopted children, I think that's awesome, and you guys are my favorite type of people. The SECURE Act allows Americans to withdraw up to $5,000 per parent from their retirement accounts, including a 401k or IRA, without a 10% penalty. So in other words, a couple can withdraw up to $10,000 penalty-free per child.

Now this is good if you really, really, really need the money, but normally I would just recommend keeping things separate. Don't touch the money that is compounding in your retirement plans for retirement. You want to save money set aside for your children's expenses. Don't commingle because it'll make things a little bit messy and you're probably going to do a little bit of cheating and you're not going to be as disciplined in saving and investing your money.

So overall, I think the SECURE Act is a net positive for millions of Americans. It's really rare that the government does something specifically positive for Americans because it always seems like it's mismanaging funds, like the Social Security pension fund is 33% underfunded and stuff like that. So this is pretty good, and what I do like is that the government recognizes there is this shift in the way Americans work from, again, going to the office to being able to work more remotely and giving Americans and freelancers and small business workers more freedom to live in lower cost areas of the country to take advantage of the arbitrage opportunities of being able to work from anywhere thanks to technology.

So I am encouraged that the government is taking right steps, positive steps to change along with the change in the way we earn and the way we save and live. So I know I was going to talk about my future plans for 2020 and beyond, but I'm going to do that in another episode.

So talk to you guys later, folks.