Wealth Planning Newsletter | Q4 2022

This quarter, the planning team has put together a short video summarizing our end-of-year planning action items and thoughts on recent planning updates. We have also highlighted these important changes below.

Student Loans
The federal student loan moratorium or forbearance deadline has been deferred one final time to June 30, 2023, with payments resuming 60 days following this new deadline.

Our team is staying abreast of the federal student loan forgiveness proposal by the Biden-Harris Administration and the pending litigation surrounding this executive order.  While millions of debt relief applications have been processed by the Department of Education, it’s premature to decipher whether it will ultimately pass.  More to follow in 2023.

See More: Biden-Harris Administration Continues Fight for Student Debt Relief for Millions of Borrowers, Extends Student Loan Repayment Pause | U.S. Department of Education

Inherited IRA
With the passage of the SECURE Act came the new 10-year payout rule for non-spousal IRA beneficiaries (with some exceptions).  The rule went into effect starting on January 1st, 2020, and effectively prohibited the ‘stretch’ feature, which previously allowed required minimum distributions (RMDs) each year based on the life expectancy of an IRA beneficiary.

It was understood that taxpayers would be allowed to take distributions over their own timeframe as long as the inherited IRA was emptied by the 10th year.

In 2022, the IRS surprisingly took the position that non-spousal IRA beneficiaries were required to take out distributions each year. This guidance created lots of confusion related to the interpretation of the SECURE Act rules, and the IRS had to step in and offer relief.  The IRS waived penalties for RMDs of non-spousal inherited IRAs in 2020, 2021 or 2022. Starting in 2023, it's very important to make certain that those RMDs are taken as finalized IRS guidance is expected.

Inherited IRA rules have exceptions, are nuanced, and the calculations for such RMDs can be tricky; please reach out to our Main Street Research team to help guide you through distribution planning.

See more: N-2022-53 (irs.gov)

SECURE Act 2.0
As we look ahead, we anticipate that we could see what's being called the Secure Act 2.0.  Though legislators are still ironing out the final version of the bills through the reconciliation process, it could usher in new changes, such as raising the required minimum distribution age to 75 by 2032, offering bigger catch-up contributions, and automatic enrollment in employer-sponsored retirement plans, amongst others.  

Changes may take effect by year-end with wide bipartisan support.  If SECURE 2.0 does not pass this year, however, the legislation must be re-proposed in both houses after the new Congress is sworn in.  

401(k) Contributions
For 2022, if you're contributing to your 401(k), you can contribute up to $20,500.  You can still make an elective contribution of $20,500.  If you're 50 or older, you can make what is called a catch-up contribution of $6,500 for a total of $27,000.

In 2023, you’ll be able to increase your elective contribution from $20,500 to $22,500.  With inflation being elevated, the new catch-up is $7,500 per year.

See More: Taxpayers should review the 401(k) and IRA limit increases for 2023 | Internal Revenue Service (irs.gov)

Social Security Cost of Living Adjustment
The Social Security Administration released the Cost of Living Adjustment (COLA) increase for 2023.  The 8.7% adjustment marks the largest increase in the last 41 years and will begin for Social Security beneficiaries starting in January 2023.  With higher than normal inflation, it will be a welcomed ‘raise.’

See More: Cost-of-Living Adjustment (COLA) Information | SSA

Qualified Charitable Distributions
Tis’ the season for giving!  For those taking required minimum distributions in 2022, one very tax efficient way to do your giving, if you're charitably inclined, is through what's called a qualified charitable distribution (QCD).

When taking a distribution directly from your IRA, you can elect to send it directly to a non-profit organization or 501(c)3 charity. The QCD also allows you to sidestep reporting the amount of the distribution as income for tax purposes.

You may also set up a donor advised fund where all charitable giving can be facilitated from one account – even reporting is made easier and can help you avoid having to keep track of all your checks written to charities throughout the year.

Front loading your giving during years where you itemize deductions can be impactful.  Cash donations are deductible up to a limit of 60% of your AGI.  If you're gifting securities or non-cash donations, the deductible limit falls between 20% and 50% of your AGI, depending on the type of non-cash donation that's being made.  When in doubt, we recommend working closely with your accountant to ensure your tax filing reflects these donations and deductions.

See More: What is a Donor-Advised Fund? (schwabcharitable.org) / 2021 Publication 526 (irs.gov)

We encourage you to reach out with any questions you may have.  If you have experienced any material life events or changes, please reach out to our team to update your wealth plan.

Thank you for your confidence in our work, and wishing you and your families a wonderful holiday season and a Happy New Year!