During this “Ask Triangle” session, we clarified the status of 2023 nontaxable accounts, provided a Federal Reserve update and gave a 2023 Outlook before answering your specific questions.

2023 nontaxable pensions and retirement accounts:

  • Historically, Iowa has always required state taxes on pensions and retirement accounts, so we are still waiting for a nontaxable implementation. The Triangle Financial team has been contacting state legislators and custodians to encourage implementing the change as soon as possible.
  • In the meantime, there is still the option of paying the tax and receiving a refund without penalty of overpayment. The loss risk would be the opportunity for interest growth.

Federal Reserve Update

  • The Federal Reserve raised interest rates by 25 basis points on February 5, 2023, increasing their target range to 4.5%-4.75%. We expect ongoing small incremental increases similar to this one.
  • With the Federal Reserve rate increase, we’ll also see an increase in credit card and auto loan rates, and mortgage rates will remain higher.

2023 Outlook:

  • CDs, money markets and multi-year guaranteed annuity rates are currently higher, between 4%-5%.
  • Annuity companies are experiencing unusually high application volumes and expect 3.5 times the numbers they are used to, so a backlog in applications is expected.
  • Schwab Yield accounts are seeing 4%-5% returns.
  • For the 2023 market outlook we may see a little bit of growth or loss but overall, we should see a pretty flat trend.

Ask Triangle:

Question: With this 2023 marketing outlook, what should I do?

Answer: There is not a blanket response to this question; any action an individual takes depends on many unique factors specific to that person, such as risk level, state of life, etc. How you respond or not needs to be appropriate for your unique situation.

That being said, our team is always planning for the long game—we don’t recommend any knee jerk responses. The Triangle Financial team monitors the market and your portfolio so you don’t have to. We know we have time to make some decisions. What you can do is know your game plan and priorities to feel confident you have long-term strategies in place.

Back in 2020 and 2021, we were already thinking about what could/would happen this year. We have individualized distribution and safety plans in place for our clients so they can continue working toward long-term financial goals, especially through short-term market volatility.

If you are concerned about what you are hearing or unsure how it affects your portfolio, we encourage you to call us or schedule a meeting.

Additional Resources:

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

Women who share money management duties with their partner tend to take on a lion’s share of the responsibility for the household finances. Yet only 18% of women feel very confident in their ability to fully retire with a comfortable lifestyle.1,2

Although more women are providing for their families, when it comes to preparing for retirement, they may be leaving their future to chance.

Women and College

The reason behind this disparity doesn’t seem to be a lack of education or independence. Today, women are more likely to go to college and graduate than men. So what keeps them from taking charge of their long-term financial picture?3

One reason may be a lack of confidence. One study found that only 55% of women feel confident in their ability to manage their finances. Women may shy away from discussing money because they don’t want to appear uneducated or naive and hesitate to ask questions as a result.4

Insider Language

Since Wall Street traditionally has been a male-dominated field, women whose expertise lies in other areas may feel uneasy amidst complex calculations and long-term financial projections. Just the jargon of personal finance can be intimidating: 401(k), 403(b), fixed, variable. To someone inexperienced in the field of personal finance, it may seem like an entirely different language.5

But women need to keep one eye looking toward retirement since they may live longer and could potentially face higher healthcare expenses than men.

If you have left your long-term financial strategy to chance, now is the time to pick up the reins and retake control. Consider talking with a financial professional about your goals and ambitions for retirement. Don’t be afraid to ask for clarification if the conversation turns to something unfamiliar. No one was born knowing the ins and outs of compound interest, but it’s important to understand in order to make informed decisions.

Compound Interest: What’s the Hype?

Compound interest may be one of the greatest secrets of smart investing. And time is the key to making the most of it. If you invested $250,000 in an account earning 6%, at the end of 20 years your account would be worth $801,784. However, if you waited 10 years, then started your investment program, you would end up with only $447,712.

This is a hypothetical example used for illustrative purposes only. It does not represent any specific investment or combination of investments.

1. HerMoney.com, April 12, 2022
2. TransAmericaCenter.org, 2021
3. Brookings.edu, October 8, 2021
4. CNBC.com, June 8, 2022
5. Distributions from 401(k), 403(b), and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.
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 Suite 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.

Whether through inertia or trepidation, investors who put off important investment decisions might consider the admonition offered by motivational speaker Brian Tracy, “Almost any decision is better than no decision at all.”

This investment inaction is played out in many ways, often silently, invisibly, and with potential consequences to an individual’s future financial security.

Let’s review some of the forms this takes.

Your 401(k) Plan

One of the worst decisions may be the failure to enroll, although more and more companies are automatically enrolling workers into their retirement plans. Not only do nonparticipants sacrifice one of the best ways to save for their eventual retirement, but they also forfeit the money that any employer matching contributions represent. Not participating holds the potential to be one of the most costly indecisions one can make.1

The other way individuals let indecision get the best of them is by not selecting the investments for the contributions they make to the 401(k) plan. When a participant fails to make an investment selection, the plan may have provisions for automatically investing that money. And that investment selection may not be consistent with the individual’s time horizon, risk tolerance, and goals.

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

Non-Retirement Plan Investments

For homeowners, “stuff” just seems to accumulate over time. The same may be true for investors. Some buy investments based on articles they have read or based on the recommendations of a family member. Others may have investments held in a previous employer’s 401(k) plan.

Over time, we can end up with a collection of investments that may have no connection to our investment objectives. Because of the dynamics of the markets, an investment that may have once made good sense at one time may no longer be advantageous today.

By not periodically reviewing what we own, which would allow us to cull inappropriate investments – or even determine if the portfolio reflects our current investment objectives – we are making a default decision to own investments that may be inappropriate.

Whatever your situation, your retirement investments require careful attention and may benefit from deliberate, thoughtful decision-making. Your retired self will be grateful that you invested the time… today.

1. CNBC.com, December 28, 2021
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 Suite 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.

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.

When considering a subject to write about, I decided to ask one of my old college roommates what financial topic she wishes she’d known more about as a younger professional. Her response: Why should I make consistent, small contributions to a 401k – or other retirement account? And how does it build up over time?

What my friend was referring to is called the power of compounding. You may be more familiar with compound interest in terms of debt – if you don’t pay off your balance within a pre-determined term, most debtors start charging interest on the unpaid balance, and your total amount owed increases with time – yikes!

When it comes to savings, the power of compounding looks instead like positive growth – which means the amount of money in your account increases resulting from re-investing dividends and interest over time. It’s tempting, especially for young adults or lower-salaried professionals, to wait to invest until you feel like you have “more money,” but is that wise?

Let’s take a look at how small investments over time compare to waiting for more “cushion” in income.

Meet three fictional characters – Mary, Max and Carter. At age 25, they have just started their first “adult” jobs in Des Moines and are each renting an apartment while paying off student loans. All three young professionals have access to an employer-sponsored retirement plan at work that they can contribute to (and may have an employer match.)

Mary decided to save in her employer-sponsored retirement account and figures she can afford to put $5,000 into this account every year. Her investment averages a return of 7% per year, and she continues to save $5,000 each year for 10 years. Mary then decides to change jobs, and her new employer does not offer a company sponsored retirement plan. Now that her investments aren’t automatically scheduled through work, she forgets to set up a savings plan and leaves the $50,000 invested in that original account. When she retires at age 65, she checks her account and is surprised to see it has grown to $562,683!

As a recent graduate, Max decided to focus on paying off those pesky student loans first and hold off on retirement savings for ten years because he just didn’t have the cashflow. After celebrating his loan payoff, Max decides to invest $5,000 per year into a retirement plan. He sets it up and forgets about it. He doesn’t miss the money since he had been paying off his student loans until then, and he never makes changes to his contributions over the years. He also has an investment that averages 7% a year. When Max is set to retire at 65, he checks his account statement to see that his account is worth $505,365.

Carter, on the other hand, decides to start saving $5,000 a year right away like Mary, but he never quit. When Carter retires at age 65, he is excited to see that his investments had grown to $1,068, 048. Carter had only invested 10 more years than Max for a total of $50,000 more, but because of the power of compounding, Carter’s account was worth twice of Max’s.

total amount invested account value at 65
mary (saved for 10 years and stopped) $50,000 $562,683
max (waited 10 years, then saved for 30 years) $150,000 $505,365
carter (saved for 40 years) $200,000 $1,068,048

Even if you can’t afford to save much now, having more time for your investment of any amount to compound will be more beneficial than holding off to save. Even though Max saved three times more than Mary, his account was still worth $57,000 less than her account was at age 65 because he waited to start saving.

The moral of this fictional story? Save early and save often. Establishing a healthy habit of saving into a compounding account early is beneficial in several ways — not only can you reach your long-term financial goals, but even if (when?) life throws you a curve ball and you need to pause your savings plan, your saved investment continues to work for you.

Lindsey Taylor, MFM
Financial Advisor

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

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