We Plan – God And The Government Laugh

There is no direct financial route to your future.  It is a series of twists and turns, detours, backroads, highways and sometimes road closures.  As a Certified Financial Planner practitioner, I have come to terms that the road of financial planning is laden with potholes! We should call it financial modification. It is making ongoing course corrections that keep you on a trajectory to a dynamic, evolving future.  We can look at financial goals, and appropriate tools to get you there. We can look at income strategies and sustainability considerations for a lifetime.  We can look at philanthropic intentions and legacy opportunities.  We plan for inflation, taxation and asset allocation.  Then life happens!  Families flux, lifequakes occur, the economy changes season, markets fluctuate or the government changes the rules. You are required to modify and pivot to optimize your potential.

Recent legislative changes are worth considering as SECURE 2.0 added new layers to already complex rulings that impact you and your family as you prepare for your future.  Each of these changes has an upside and downside depending on your unique life situation.  They may be beneficial or not so much.

While the government changed the rules, it will take at least a year for the financial services industry to facilitate many of the changes.  While some of these are live as of January, 2023, others come into play in 2024 or later.  Please discuss options and opportunities with your financial and tax professionals.

Are you in retirement?

Your RMD

Starting in January, the age at which you need to start taking your required minimum distribution increased to 73 and will be pushed to 75 starting in 2033.  If you turn 73 in 2023, you need to take your first RMD by April 1, 2024.  If you push it into 2024, you will need to take two distributions.  One based on the account value on December 31, 2022, and one based on the account value on December 31, 2023.

Upside – This will allow people to keep their retirement accounts tax sheltered for a few more years, and if you are working, you can continue to contribute to the accounts.

Downside –  IRA and other employer sponsored plan accounts are taxed as ordinary income upon distribution. If withdrawals happen later, you may be exposed to higher tax liabilities if tax rates go up (which they are set to do in 2025).

Oops, you forgot to take your RMD.  It happens (but it shouldn’t).  Starting this year, the excise tax penalty for failing to take your RMD goes from 50% to 25% and even 10% if the account owner takes the required RMD and submits a corrected tax return in a timely fashion.

QCD with your RMD

The opportunity to make QCD (Qualified Charitable Distribution) remains at 70.5 and the Secure 2.0 expanded who can receive a Qualified Charitable Distribution.  A QCD cannot be given to every charity.  You can’t contribute to your Donor Advised Fund, private foundation or their supporting organizations.

Starting in 2023, anyone above 70.5 may make a one-time gift of up to $50,000 to a Charitable Remainder Trust, or Charitable gift annuity.  While this would keep the income off your tax return, the future income received from the CRT or CGA would have tax implications.

This will count toward your annual RMD if applicable.  Along with utilizing the QCD to fund your favorite organizations, you keep the income off your tax return.  It is more tax efficient to do it this way than to take it out of your IRA, pay taxes, then itemize your contributions on your tax return.  The QCD must come directly from your IRA up to $100,000.  You need to make sure there is communication between your investment professional and your tax accountant.  The 1099 that your investment custodian will send out will not indicate that it was sent as a QCD and unless your accountant knows to keep it off your tax return, you will get taxed on the proceeds that went directly to the charitable organization.  A QCD is a powerful way to give, especially if you claim standard deductions on your return.

Years away from Retirement?

Catch up Contributions: Starting in 2023, if you are 50 or older, you can set aside an additional $1,000 into your workplace plan.  Beginning in 2025, if you are between the ages of 60 and 63, you will be able to add $10,000 more a year above the standard limit.  Do you have your calendar out yet?  Could things get any more complex? YES!

Rollovers of 529 plan balances to ROTH IRA

Starting in 2024, you will be able to rollover up to $35,000 of leftover 529 plans that have been in place for at least 15 years into a ROTH IRA.  The beneficiary would need to have earned income and any contributions and earnings from the most recent five-year period are not eligible.  For those grandparents out there funding their grandchildren’s 529, you don’t need to worry about overfunding them, as this will create a great option to start them on their future savings.

Secure 2.0 has more moving parts than a tilt a whirl at an amusement park.  As you ride life, make sure you are optimizing your financial potential as you grow your assets, as you move into and through your distribution season and as you consider your legacy for future generations.


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