Clients can now make IRA contributions at any age. But should they?

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Clients can now make IRA contributions at any age. But should they?
Although the Secure Act scrapped the age limit for IRA contributions, younger clients are better off contributing to traditional IRAs early than later in life to make the most of the tax deductibility and tax-deferred compounded growth, writes Morningstar’s Christine Benz. Pre-retirees should consider funding a Roth IRA to take advantage of tax-free compounding and tax-exempt withdrawals in retirement, she writes. Contributing to a traditional IRA will benefit seniors who want to make catch-up contributions as well as high-income workers who intend to use the backdoor Roth strategy.

Are your clients’ parents ready for retirement?
Adult children are advised to initiate the conversation with their retired parents about their finances ahead of a potential crisis, according to this article in The New York Times. To do this, children are advised to relate the conversation with their own life and give their parents the role of an expert and helper, according to the article. They should also discuss the topic with other siblings before talking to their parents. “Problems become exponentially more complicated if kids don’t communicate well with each other and don’t present a unified plan about how best to support mom and dad, socially, environmentally and potentially financially,” according to an elder law attorney.

This strategy could save clients money in retirement
Seniors who expect to have a limited income in retirement can boost their financial prospects by lowering their cost of living, according to this article in Motley Fool. To reduce their spending, clients are advised to minimize their housing expenses, take advantage of senior health care programs that their home state provides and lower their transportation costs by living close to their family and friends. Moving to a state with lower property, income and other taxes is also another smart move to lower their living costs, according to the article.

Employers are putting more money in your clients’ 401(k) — that’s a good thing
Data from Fidelity Investments show that about 35% of companies automatically enrolled their new employees in their 401(k) plans in the last quarter of 2019, according to this article in MarketWatch. The percentage of retirement plans with 5% to 6% default contribution rates increased to over a third in the fourth quarter in 2019 from about 12% in the same period in 2009, the report shows. An expert says that opting for a higher default rate is crucial to securing retirement. “The reality is, over the length of someone’s entire career, that 1-3% difference can be massive for income in retirement.”