Economic Update

The Secure Act 2.0

Top Takeaways for Effective Retirement Strategies

Part 2 of 3

In our last issue, we summarized some of the incentives that the SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement) provides lower-income (including part-time) and young workers. In this issue, we highlight some of the Act’s effects on individuals who are currently contributing to retirement plans or looking for the most tax-effective ways to withdraw their savings.

The Saver’s Match

Some individuals making contributions to individual retirement accounts (IRAs), employer retirement plans (e.g., 401(k) plans), and ABLE accounts had qualified to receive non-refundable credits as a tax refund. Under the Act, and beginning in tax years after December 31,2026, these individuals will qualify for a 50% federal matching contribution (or Saver’s Match) up to $2,000 per individual that will be deposited into their IRA or retirement plan. There are limits on these matches and penalties for withdrawing Saver’s Match funds before retirement, so please contact us for further information.

Retirement Plan Catch-Ups

Under current law, individuals, age 50 and older, can contribute $1000 more to their IRAs than can those under age 50. For tax years beginning after December 31, 2023, that $1000 contribution will be indexed for inflation.

A second catch-up beginning in 2025 applies to those between the ages of 60 and 63. Under current law, individuals at age 50 could make a catch-up contribution of $6500 (for SIMPLE plans the limit is $3000). These limits will increase to “the greater of $10,000 or 50 percent more than the regular catch-up amount in 2025.” (Section 109) After 2025, these amounts will be indexed for inflation.

Catch-up Contributions to 401(k) and Employee-Sponsored Plans

If you are age 50 or older, the amount you can contribute to your workplace retirement plan beyond the maximum contribution has increased to $7,500 per year in 2023 and to $10,000 in 2025. Employees who reach age 60 to 63 in 2025 will be able to contribute the greater of $10,000 or 50% of the “standard” catch-up amount for 2024. If your wages exceed $145,000 in 2023, there are requirements that apply to your contributions beginning in 2024.

Changes to Required Minimum Distributions (RMDs)

Required minimum distribution ages and dollar limits play a role in most retirement planning strategies. The Secure Act changes regulations related to both the age that minimum distributions must commence, and the penalties for failing to adhere to the age requirements. As of January 1, 2023, the threshold age for RMDs from individual IRAs and workplace retirement plans increased from age 72 to 73. The threshold will increase again in 2033 to age 75. The Act eliminated RMD for Roth 401(k) accounts entirely.

Prior to 2023, the penalty (excise tax) for failing to take RMDs as required was 50% of the undistributed amount. That penalty is now 25% and may be reduced even further when certain conditions are met.

If you are interested in how the Act affects minimum distribution limits related to life annuities, please contact us.

“Leftover” 529 Plan Funds

The 10% tax penalty and taxation of investment gains at one’s federal income tax rate for taking non-qualified withdrawals from 529 accounts prevents some students and parents from taking advantage of 529 plans to pay qualified education expenses. The Act addresses these concerns by allowing penalty-free rollovers from 529 accounts to Roth IRAs under certain conditions. As always, certain limits apply, so please contact us for more information.

The Act makes many more changes to these and other retirement planning vehicles, so please give us a call if you’d like to learn more.

Lifestyle

“There are only two places in the world where we can live happy:

at home and in Paris.”

Ernest Hemingway

Those of you who know Pat, know that he and his wife, Julie, are inveterate travelers. “Exploring different cultures broadens our horizons, educates, and rejuvenates us,” Pat explains. It seems that their adventure also inspire other members of the Obsidian family.

Pat’s writing partner for his book, Tame Your Money Elephants, Kathy Bolinske, recently returned from six weeks in Paris.

“Since visiting Paris during college, I’ve wondered what it would be like to see the city at my own pace and from inside a Haussmann building rather than from a hotel room or tour bus. The internet makes it possible to work from anywhere in the world so why not exchange my desk in Denver for one within easy walking distance of always-fresh croissants, baguettes, and macarons?

I expected to learn a lot (and did) about Gothic and Baroque architecture. More practically, I learned how to dry clothes, sheets, and towels on racks or hanging from curtain rods above open windows. I learned that one can buy wine on Sunday mornings, but not Sunday afternoons. I learned that strikes don’t just close streets, but Metro stops as well. I learned that watching the sun set from the Basilica of Sacré-Coeur is absolutely worth climbing the many steep sets of stairs to get there. (Maybe that explains why everyone else watching is so young!) I learned that fresh basil comes in a pot of dirt instead of a plastic container, and that the least crowded time to visit the Louvre is on Friday nights after 7:30. And last, but not least, I learned that George Gershwin truly understood the sound of the City of Lights when he incorporated honking taxi horns into An American in Paris.

How We Help

The Lifestyle Protector Process™

Your Personal Financial Blueprint

Have you ever wondered whether your investments are in the right place or doing as well as you think they should? Do you know whether you have the right type (and amount) of insurance, or if you will have the funds you want (and need) for your retirement years?

The answers to these questions and more are answered in the financial blueprint that we call The Lifestyle Protector Process.™

“As soon as I named this tool a ‘Process,’” recalls its creator, Pat Carroll, “people asked me, ‘Why not Lifestyle Protector Plan?’ The answer is that this tool helps people protect and grow their wealth as their families, goals, income, markets, and types of investments change. Because we are constantly addressing new challenges, taking advantage of new opportunities, and / or setting new goals, this tool is an ongoing process rather than a static plan.”

The ultimate goal of the Process is simple: to protect and grow your wealth so you can enjoy life to the fullest. To us, “fullest” means you are able to maintain the lifestyle you desire, preserve your family legacy, and sleep soundly at night.

Our clients report that they sleep well when they know 1) whether they are making progress toward reaching their goals, 2) that their investments are diversified, and 3) that their estate plans protect their assets from creditors and unnecessary taxation and put assets in the hands of the people they choose (and, if applicable, their children in the arms of the people they choose).

If you don’t already have The Lifestyle Protector Process™ working for you, give us a call. We’d be happy to show you how it can help you achieve your goals—and, of course, get a good night’s rest.

Advisory Services offered through Obsidian Personal Planning Solutions, LLC. Securities are offered through Triad Advisors, member ​FINRA/SIPC.​ Obsidian Personal Planning Solutions, LLC, and Obsidian Personal Planning Solutions, Inc, are not affiliated with Triad Advisors.