The intention of the measures of the Secure 2.0 Act is to strengthen the retirement system and Americans’ financial readiness for retirement. Our article below highlights the points that we think will be most relevant to you. Of course, it is our job to know these rules and apply them appropriately to your situation.

Next we continue our introduction to tax season. It is our wish and intention to infuse the joy of connection, along with the delight of accuracy and efficiency, into our work assisting you to meet your tax obligations.

January 2023 Wonder Question

This month, write your own wonder question using the prompt below:

• What is the question you choose to guide your year?
• Consider the areas of your life you want to nourish, expand, grow. Create a What or How question to support your annual journey.
• Write your question in your journal. Contemplate the end of 2023 and ask, what has happened to support this area of my life? What beliefs now support me, others? What behavior do I inhabit? What views are embodied in my way of seeing?

 

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Secure 2.0 Act

 

by David Manteau

The SECURE 2.0 Act is now law. The law builds on earlier legislation that among other things, increased the age at which retirees must take required minimum distributions (RMDs).

The following is a brief summary of some of the most notable initiatives. All provisions take effect in 2024 unless otherwise noted.

• Later age for required minimum distributions (RMDs).
SECURE 2.0 raises the age to 73 beginning in 2023 and 75 in 2033.

• Reduction in the RMD excise tax.
Current law requires those who fail to take their full RMD by the deadline to pay a tax of 50% of the amount not taken. The new law reduces that tax amount to 25% in 2023; the tax is further reduced to 10% if you take the full required amount and report the tax by the end of the second year after it was due and before the IRS demands payment.

• No RMDs from Roth 401(k) accounts.
The legislation eliminates the requirement for savers to take minimum distributions from their work-based plan Roth accounts.

• Higher limits and looser restrictions on qualified charitable distributions from IRAs.
The amount currently eligible for a qualified charitable distribution from an IRA ($100,000) will be indexed for inflation. In addition, beginning in 2023, investors will be able to make a one-time charitable distribution of up to $50,000 from an IRA to a charitable remainder annuity trust, charitable remainder unitrust, or charitable gift annuity.

• Higher catch-up contributions.
The IRA catch-up contribution limit will be indexed annually for inflation, similar to work-sponsored catch-up contributions. Also, starting in 2025, people age 60 to 63 will be able to contribute an additional minimum of $10,000 for 401(k) and similar plans (and at least $5,000 extra for SIMPLE plans) each year to their work-based retirement plans.

Moreover, beginning in 2024, all catch-up contributions for those making more than $145,000 will be after-tax (Roth contributions).

• Roth matching contributions.
The new law permits employer matches to be made to Roth accounts. Currently, employer matches must go into an employee’s pre-tax account. This provision takes effect immediately.

• Emergency savings accounts.
The law includes measures that permit employers to automatically enroll non-highly compensated workers into emergency savings accounts to set aside up to $2,500 (or a lower amount that an employer stipulates) in a Roth-type account. Savings above this limit and any employer matching contributions would go into the traditional retirement account.

• Matching contributions for qualified student loan repayments.
Employers may help workers repaying qualified student loans simultaneously save for retirement by investing matching contributions in a retirement account in the employee’s name.

• 529 rollovers to Roth IRAs.
People will be able to directly roll over up to a total of $35,000 from 529 plan accounts to Roth IRAs for the same beneficiary, provided the 529 accounts have been held for at least 15 years. Annually, the rollover amounts would be subject to Roth IRA contribution limits.

• New exceptions to the 10% early-withdrawal penalty.
Distributions from retirement savings accounts are generally subject to ordinary income tax. Moreover, distributions prior to age 59½ also may be subject to an early-withdrawal penalty of 10%, unless an exception applies. The law provides for several new exceptions to the early-withdrawal penalty, including an emergency personal expense, terminal illness, domestic abuse, to pay long-term care insurance premiums, and to recover from a federally declared disaster. Amounts, rules, and effective dates differ for each circumstance.

These provisions represent just a sampling of the many changes that are brought about by SECURE 2.0. We look forward to providing more details and in-depth analysis applying specifically to you in the weeks to come during our meetings.

Sources:

• https://www.fidelity.com/learning-center/personal-finance/secure-act-2
• SECURE 2.0 Act of 2022 – A boost to retirement saving

 

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Getting Excited for Tax Season

 

The 2023 tax season officially started on Monday, January 23, when the Internal Revenue Service began accepting and processing tax returns for the 2022 tax year. Clients for whom we prepare tax returns received our kick-off communication last Friday. Here’s the gist:

We are putting a stake in the ground to say we’d love to have your tax data sooner rather than later. However, we in no way wish for you to feel pressured or rushed. Please consider our Feb. 15 submission date as encouragement to proactively get your data out of your life, and into ours.

Frequently Asked Questions:

Q: What if I am waiting for information such as 1099s or corrected 1099s?

A: It is best to receive the bulk of your documents sooner rather than later. Institutions are required to produce 1099s by January 31. We plan for corrected 1099s in our tax preparation schedule. We have direct access to the corrected 1099s if we manage your portfolio. Sooner is always better than later to process your data.

Q: Where is my tax organizer?

A: For clients who use the Integral Wealth Portal, we uploaded yours to your Portal Vault > Taxes > 2022 folder. For clients who prefer paper, we mailed it to you. Please don’t hesitate to request a paper organizer if that helps you. New clients, your organizers are forthcoming shortly.

Q: Do you prefer that I upload or mail my documents?

A: We prefer uploads, to the secure Integral Wealth Portal. It eliminates scanning of the documents. However, we are HAPPY to scan whenever needed.
Please upload to your Integral Wealth Portal > Shared Documents folder.

Q: Shall I staple or paperclip my material?

A: Paperclips please! Paperclips prevent wrestling with staple removers, ripped paper, jammed scanners… however we will still love you if you use a stapler.

Q: I am nervous about the security of USPS mail if I mail documents.

A: We have installed a locking mailbox at our mailing address. UPS and FedEx deliver inside our office (specify to deliver during business hours.) You can also drop off your documents to the office; please let us know when you plan to arrive.

Q: May I have a list of ALL tax deadlines?

A: Thank you for asking! Important tax deadline dates

Some updates from the IRS

After a couple of years of more lenient laws and deadlines, the IRS has warned that rules will be a lot tighter this year, and refunds may be smaller.

What’s the standard deduction for the 2022 tax year?

The standard deduction for married couples filing jointly jumped $800 to $25,900. For single taxpayers and married individuals filing separately, the standard deduction was up $400 to $12,950. And for heads of households, the standard deduction will be $19,400, up $600.

Next year, when you file your 2023 taxes, you’ll see those numbers climb to $27,000 for married couples filing jointly (an $1,800 increase) and single taxpayers and married individuals filing separately will see the standard deduction rise to $13,850, up $900. The standard deduction for heads of household will jump to $20,800 for tax year 2023, a $1,400 increase.

Why will my refund be smaller in 2023?

During the pandemic, there were several benefits that increased individual refunds. But now, we’re back at 2019 levels.

The child tax credit, for example, will return to its normal rate this year after a big boost for the 2021 tax year. The enhanced rate boosted the credit to as much as $3,600 per child, depending on their age. This year, it reverts to $2,000 per kid under 18. For families with two children under six, that works out to a $3,200 reduction in credits. Similarly, the tax credit for child and dependent care expenses has dropped back to $2,100 this year from its pandemic high of $8,000.

That $600 above-the-line charitable donation deduction is gone. Also, if you’re in one of the more than a dozen states that offered rebates or refunds last year, those checks could count as taxable income on your federal returns, even if you don’t have to pay a state tax on them.

“Refunds may be smaller in 2023,” the IRS said bluntly in a statement last November. “Taxpayers will not receive an additional stimulus payment with a 2023 tax refund because there were no Economic Impact Payments for 2022. In addition, taxpayers who don’t itemize and take the standard deduction, won’t be able to deduct their charitable contributions.”