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Clients should be thinking about their kids' retirement, too

Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

Giving clients' children a head start on retirement planning
Clients who want to get an early start on preparing their children for financial independence — including retirement — can open 529 college savings plans, which in some states may lower the client's tax bill, according to Forbes. Contributing to their Roth IRAs is another option. Another option is buying a life insurance policy for a child, which could allow them to qualify for additional coverage if they develop health problems later in life, the article says.

The new Tax Cuts and Jobs Act has scrapped taxes on the child's excess unearned income at the same rate as the parents.
A man walks with a girl along a sidewalk in Kawasaki, Kanagawa Prefecture, Japan, on Tuesday, Sept. 18, 2018. Japan's population of 127 million is forecast to shrink by about one-third in the next five decades. Photographer: Akio Kon/Bloomberg

Paperwork slipups can drain thousands from retirement accounts
A warning story for clients who work for the federal government: A retired Department of Veterans Affairs employee's error on a form caused her to receive $25,000 less in a withdrawal from her Thrift Savings Plan. The mistake subjected the TSP funds to a mandatory 20% federal tax withholding, which she was unable to overturn in a lawsuit against the board administering the plan.

HSAs as retirement savings tools
Clients who are maxing out contributions to tax-deferred retirement plans should look at HSAs before non-deferred options, writes Peter Lazaroff, CIO of Plancorp, in an op-ed for The Wall Street Journal. The contributions are tax deductible and grow tax free, making them an ideal option for expenses "which are likely to represent a significant portion of your future budget," Lazaroff writes. The key to leaving an HSA untouched, he advises, is "sufficient cash flow, but also a healthy emergency fund so you have reserves on hand for large, unexpected medical expenses."

Will the Secure Act hurt clients reinvesting their withdrawals?
The proposed Secure Act, which would increase the age at which clients begin taking RMDs from 70 1/2 to 72, will not mean clients who reinvest their withdrawals will end up with more money, according to CNBC. Take a 70-year-old client with $500,000 in an IRA. Under current law, if they reinvest their RMDs, their yield will grow to $569,000 by their 89th birthday, according to the article. Under the Secure Act, it would yield just $533,000. On the other hand, moving the RMD to a later age gives clients more time to convert their Roth IRA, allowing them to spread the funds over many years and thus minimize yearly taxes, the article says.

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