During this “Ask Triangle” session, we shared some market updates and new legislation that will be relevant for the upcoming year.

Market Updates:

  • The Federal Reserve is planning to raise rates three more times while bond prices continue to decrease.
  • Employment numbers are down with job cuts, and wage growth is lower than expected.
  • Indicators we are watching: manufacturing numbers are at the lowest since May 2020 with the reduction of produced goods. Research partners are saying the next 3-9 months may see some level of recession.
  • If we slip into a recession, Federal Reserve may stop raising interest rates.
  • Setting up a time with the Triangle Financial team for a review will be important to ensure you are properly positioned for your current phase of life and/or if you’re particularly concerned about how the current market may impact your financial goals.

New Legislation

  • There are new tax guidelines for retirement income exemptions for 2023, including:
    • Iowans aged 55 and over are exempt from state tax for retirement income from IRA distributions, taxable pensions and annuities.
  • Secure Act 2.0
    • Effective Jan. 1, 2023, the Required Minimum Distribution (RMD) age increased to 73. If you turned 72 in 2022 or anytime before that, you are required to continue taking RMDs from an employer-sponsored retirement plan. In 2033, RMD age will further increase to 75 years old.
    • Roth employee retirement accounts are exempt from RMD beginning 2024.
    • 529 Plans can be rolled over into Roth IRAs if the account has been open for at least 15 years. Some of the contributions have to be from W2 income from the beneficiary.
    • Beginning in 2025, the catch-up contributions for 401K, 403b and 457b will increase to $10,000.
    • The penalty for failing to take an RMD reduced from 50% to 25% if corrected within a certain window. If you withdraw the RMD amount and submit a corrected tax return in a timely manner, the 25% penalty could be reduced to 10%.

Ask Triangle:

Question: If an individual who had a Roth IRA passes away, can the account remain a Roth IRA?

Answer: Yes, the spouse of a deceased account holder has options. There can be great benefits to inheriting a Roth account, including withdrawing contributions tax free. But you will want to keep the “Five-Year Rule” in mind. If the Roth account was less than 5 years old at the time of the original account holder’s date of death, any earnings withdrawn will be taxed. Be sure to contact us for guidance through this process.

Depending on how the Roth was inherited, for example if it was not through a spouse or direct family lineage (parent to child), it could be subject to estate taxes. Estate tax does not occur until wealth exceeds $12.6 million, but then up to 40% can be taxed. In Iowa, there is no estate tax if the account was inherited through direct lineage (parent to child), but when the account is divided among surviving children, inheritance taxes may occur.

Question: I am a recent homebuyer and want to look into refinancing. Is determining when to refinance a home something Triangle Financial Services can advise on?

Answer: While Triangle Financial doesn’t write mortgages, we do work with independent brokers who can help. We can, however, help you make an informed decision on whether it may be an ideal time to choose refinancing.

For example, when closing costs come into question, we can help by looking at the lifetime of the loan to provide a break-even analysis considering all of the refinance costs and percentage payment amounts may decrease.

When beginning to consider refinancing, look at what third-party sources are saying about the housing market. You can always reach out to our team to get our opinion on the current market and refinancing at that time.

Additional Resources:

Securities and Advisory Services offered through Harbour Investments, Inc. Member SIPC & FINRA.

In the final days of 2022, Congress passed a new set of retirement rules designed to facilitate contribution to retirement plans and access to those funds earmarked for retirement.

The law is called SECURE 2.0, and it is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in 2019.

The sweeping legislation has dozens of significant provisions; here are the major provisions of the new law.

New Distribution Rules

Required minimum distribution (RMD) age will rise to 73 years in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking RMDs. Further, starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. However, if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach.1

Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees. For example, 2024 onward, an employee can take up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.2

Reduced penalty. Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25 percent from 50 percent. If you promptly fix the mistake, the penalty may drop to 10 percent.3

New Accumulation Rules

Catch-up contributions. From January 1, 2025, investors aged 60 through 63 years can make annual catch-up contributions of up to $10,000 to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals with annual earnings more than $145,000.4

Automatic enrollment. In 2025, the Act requires employers to automatically enroll employees into workplace plans. However, employees can choose to opt-out.5

Student loan matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.6

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth individual retirement account (IRA). Therefore, if your child receives a scholarship, goes to a less expensive school, or does not go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are also allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.7

SIMPLE and SEP. 2023 onward, employers can make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP).8

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 401(b)s with Roth IRA rules. From 2024, the legislation no longer requires minimum distributions from Roth accounts in employer retirement plans.9

More Highlights

Support for small businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100 percent from 50 percent for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.10

Qualified charitable donations (QCDs). 2023 onward, QCDs will adjust for inflation. The limit applies on an individual basis; therefore, for a married couple, each person who is 70½ years and older can make a QCD as long as it remains under the limit.11

The change in retirement rules does not mean adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changes to another.

Moreover, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It is not intended as a substitute for real-life advice. If changes are appropriate, your trusted financial professional can outline an approach and work with your tax and legal professionals, if applicable.

  1.  Fidelity.com, December 23, 2022
  2. CNBC.com, December 22, 2022
  3. Fidelity.com, December 22, 2022
  4. Fidelity.com, December 22, 2022
  5. Paychex.com, December 30, 2022
  6. PlanSponsor.com, December 27, 2022
  7. CNBC.com, December 23, 2022
  8. Forbes.com, January 5, 2023
  9. Forbes.com, January 5, 2023
  10. Paychex.com, December 30, 2022
  11. FidelityCharitable.org, December 29, 2022
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.

The Internal Revenue Service (IRS) has released new limits for certain retirement accounts for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.

Keep in mind that this update is for informational purposes only, so please consult with an accounting or tax professional before making any changes to your 2023 tax strategy. You can also contact your financial professional, who may be able to provide you with information about the pending changes.

Individual Retirement Accounts (IRAs)

Traditional IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.

Remember, once you reach age 73, you must begin taking required minimum distributions from a Traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Roth IRAs

The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.

To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death.

Workplace Retirement Accounts

Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.

Once you reach age 73 you must begin taking required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

SIMPLE Accounts

A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.

Much like a traditional IRA, once you reach age 73, you must begin taking required minimum distributions from a SIMPLE account in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

As a reminder, this article is for informational purposes only. Consult with an accounting or tax professional before making any changes to your 2023 tax strategy.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

css.php