Secure Act 2.0 (2023 changes inside)
After months of debate, Congress finally passed some major changes to retirement laws at the end of 2022. The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changes are numerous, complex, and will roll out over several years.
We hope your year is off to a great start! As many of you may have already heard, 2023 brought with it new legislation that will likely affect ALL of us in one way or another.
So let's dive in!
After months of debate, Congress finally passed some major changes to retirement laws at the end of 2022. (1)
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changes are numerous, complex, and will roll out over several years.
Let's focus for now on some changes for 2023:
The age at which required minimum distributions (RMDs) begin increased to 73 in 2023.
This change impacts folks born between 1951 and 1959.
The penalty for missing all or part of an RMD decreased to 25% in 2023.
However, if you correct the past-due RMD and pay taxes on it within two years, the penalty drops to 10%. (3)
Qualified Charitable Distributions have a few more options.
Starting in 2023, folks who are aged 70½ or older can gift a one-time amount of $50,000 (adjusted for annual inflation) to a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA). (4)
Roth savings get a boost.
Starting in 2023, employers can offer workers the choice to receive vested matching contributions directly to their Roth account, where they’ll grow tax-free. (2) Also, Roth contributions to SIMPLE and SEP-IRAs are authorized in 2023. (5) However, we'll have to wait for the IRS and custodians to work out procedures before folks can take advantage of these new opportunities.
More folks can take early distributions from their retirement accounts without penalty.
Starting in 2023, victims of disasters and folks who are terminally ill will be able to access their retirement accounts early without incurring a 10% penalty. (6) There's plenty of fine print, so let's have a conversation if you think you might be eligible.
Bottom line:
There’s A LOT to unpack in the new laws. Many new rules, including changes to catch-up contributions and 529 plans, will roll out in 2024 and 2025.
As we’ve learned with previous new regulations, Congress might enact new laws, but we often have to wait for the IRS, other agencies, and the marketplace (ex. 401k record-keepers) to catch up before we can fully make use of them.
Stay tuned for more updates as the new rules shake out.
Sources:
1. https://www.plansponsor.com/official-secure-2-0-law/
2. https://www.fidelity.com/learning-center/personal-finance/secure-act-2
3. https://www.kiplinger.com/retirement/new-rmd-rules
4. https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html
6. https://www.jdsupra.com/legalnews/secure-2-0-changes-rules-for-retirement-9979502/
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Should You Retire When the Stock Market Is Down?
Downturns in the market are often followed by feelings of uncertainty - fear of the the future. We often hear from folks (prospecting & existing clients alike) the million-dollar question... “Should I retire now, or wait until the market comes back up?”
Should You Retire When the Stock Market Is Down?
As we’ve written about in the past, downturns in the market are often followed by feelings of uncertainty - fear of the the future. These emotions often manifest as actions - decisions we make that impact our financial lives.
We often hear from folks (prospecting & existing clients alike) the million-dollar question... “Should I retire now, or wait until the market comes back up?”
For our younger clients who aren’t yet looking to retire, it may be the same question but for a different life transition... “Should I start my own business/change jobs now, or wait until the economy is in better shape?”
As many of you know, this question is founded on some old fashioned ideas that were shoved into our minds by the “financial media”. Ideas that say...
You can’t retire during a recession
Your spending needs to decrease when your portfolio value decreases
You should time your retirement around movements in the market
While there is merit to these ideas (more on that later*), we want to debunk some of these money myths and provide clarity for you as you navigate life’s big transitions.
Timing the Market vs. Time Horizons
One thing is certain, we don’t have the ability to accurately predict which way the market will move on any given day. So, if you’re waiting for a sunny spring day where the markets send you a note saying they “guarantee to go up for the rest of your retired life”, keep dreaming...
Because you cannot time market movements, you must manage your money to time horizons.
Many of you know this as our “Three Buckets” approach. Each bucket represents a time horizon for a financial need or goal:
Short-Term — 0-2 years
Mid-Term — 3-6 years
Long-Term — 7+ years
These time horizons are determined by decades of academic and market research, and are designed to allow the market to work in your favor by you staying disciplined within each time horizon.
Here’s why a market downturn (and even a recession) should not be the determining factor as to whether or not you should retire...
If you have properly allocated money into each time horizon bucket, then you needn’t worry about short-term market movements.
Okay, but WHY?
Three Big Reasons:
When you’ve planned appropriately, you should have up to a two-year runway of cash on hand.
So if you retire now, while the market is down, no big deal! You’ll pull from your cash reserves to meet your needs over the next 18-24 months.
As time goes on, and the market eventually recovers, we make allocation changes within your portfolio.
Need more cash to replenish your short-term bucket? We’ll look to sell stock funds or bond funds within your portfolio to create the necessary cash. Whether or not you decide to sell stocks or bonds at that time will depend on multiple factors (total portfolio value, current performance, your unique tax situation).
We manage your portfolio in conjunction with your Financial Life Plan.
So you can rest assured that your financial time horizons are being reviewed, and your investment holdings are being managed pursuant to the unique timing of your life.
At the end of the day, that’s what it’s all about, right? Getting your financial resources to align with your unique goals and values... not the other way around.
*Special Note: As described above, a stock market downturn should not directly effective your daily spending decisions. However, there is merit to this approach from one simple standpoint... if you decrease spending due to a market downturn, the two years of cash you’ve planned for in your “short-term bucket” will now stretch further... making you more resilient overall to the market’s downturns. But if you plan accordingly, a market downturn should not necessitate a spending change.
Again, if you feel this could be helpful to friends and family, please send it along. We welcome an introduction to those you think most highly of.
Thank you for your continued trust. It’s an honor to work alongside you.
Student Loan Forgiveness: What You Need to Know
On the heels of President Biden’s announcement last week, there is a lot of confusion and many questions around Student Loan Forgiveness. There are parameters for who qualifies, and which loans can be forgiven, so it is very important that you determine whether or not you qualify, and then make an action-plan from there. HEre’s what we know so far.
The Announcement:
On the heels of President Biden’s announcement last week, there is a lot of confusion and many questions around Student Loan Forgiveness. There are parameters for who qualifies, and which loans can be forgiven, so it is very important that you determine whether or not you qualify, and then make an action-plan from there.
While things may change in the coming weeks, here is what we know so far…
** Note: If you have student loans, please contact your Triune advisor to discuss your unique circumstances.
Not a Triune client, but have questions? Schedule an intro call today.
What You Need to Know:
This only applies to Federal student debt.
You are eligible if your Adjusted Gross Income (AGI) is less than $125,000 ($250,000 if married filing jointly). Your AGI from 2020 or 2021 may render you eligible, but 2022 income will not (per the New York Times).
The Department of Education will cancel up to $10,000 per borrower, and up to $20,000 for Pell Grant recipients.
The pause on student loan repayments has been extended to December 31, 2022. Borrowers should expect payments to resume in January 2023.
The Department of Education has also proposed a new income-driven repayment plan that caps monthly payments at 5% of discretionary income (down from 10% for some of the current income-driven repayment programs). This only applies to undergraduate loans.
Special Note if you have ALREADY made payments (or even paid off) your Federal student loans:
According to the Federal Office of Student Aid, you can request a refund for any payments made since March 13, 2020.
You will likely need proof of payment.
Not all loans are eligible (like the FFEL, Federal Perkins Loans, private student loans).
So, if you paid up to $10,000 towards your qualifying student loans since March 13, 2020, you may request a refund of those payments, and then request student loan forgiveness to have the remaining amount forgiven.
Be sure that your income qualifies before taking this step.
What To Do Next
Watch for the online application expected to be launched in the coming weeks for borrowers to provide their income information. This application is expected to be made available before the repayment pause ends on December 31.
You can sign up for updates by checking the “Federal Student Loan Borrower Updates” box and entering your email at the Department of Education's subscriptions page.
