January 23, 2023 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 23, 2023 

This Week’s Podcast – Secure Act 2.0 – How Your Retirement Plan is Affected

Are you curious about how your retirement plan is affected by the Secure Act 2.0? The Secure Act 2.0 was just passed at the end of the calendar year 2022 with some major updates on it.

The Secure Act 2.0 has changed things around when to take your Required Minimum Distributions from now moving forward.


This Week’s Blog – Secure Act 2.0 – How Your Retirement Plan is Affected

The Secure Act 2.0 impacts your retirement planning, and it has some major updates to it, including required minimum distributions (RMDs). Since the Act was just passed at the end of 2022 and is now in effect, it’s important that we discuss these key changes with you.

**Special Online Presentation explaining Structure Notes:

You are invited to a Zoom meeting. 

When: Jan 30, 2023, 12:00 PM Eastern Time

Register in advance for this meeting:


After registering, you will receive a confirmation email containing information about joining the meeting.

Secure Act 2.0 – How Your Retirement Plan is Affected

The Secure Act 2.0 impacts your retirement planning, and it has some major updates to it, including required minimum distributions (RMDs). Since the Act was just passed at the end of 2022 and is now in effect, it’s important that we discuss these key changes with you.

Secure Act 2.0 and Changes to Your Required Minimum Distribution

When you funnel money into your traditional IRA, 401(k), 403(b) or 457, you defer your taxes and make an “agreement” with the IRS. The agreement is sort of a handshake-type deal that allows you to defer your taxes on the basis that you will, at a certain age, be required to take a certain percentage out of your tax-deferred account, called an RMD.

The IRS wants you to begin paying taxes on the funds that you deferred, and you will only pay money when the money has been distributed to you.

However, it’s important to note that:

  • You’re not required to spend the money
  • You can reinvest the money once you have paid taxes on it

We’re going to review the changes in the age that you need to start taking these distributions. The IRS has made this a bit complicated with the rules and regulations in place, but we’re going to make it as simple as possible for you.

Note: None of this is for your Roth 401(k) or IRA, which are not tax-deferred. Instead, these changes are only for accounts that you have where you’ve been able to defer your taxes.

Changes Today vs. Before the Secure Act 2.0

Before the current changes, the age that you were required to take your RMD was 70 ½. Why the half is included, we don’t know, but in the year that you turn 70 ½, you needed to take these RMDs from your tax-deferred accounts.

Every year forward, you would need to take a distribution from these accounts.

However, as of December 29, 2022, the age for RMDs has changed thanks to the Secure Act 2.0. The new rules for RMDs are:

  • Born in 1950 or earlier, you should have already been taking your RMDs and nothing has changed for you.
  • Reached age 72 in 2022. You should have taken your RMD or had the option to defer it until April 1, 2023. (More on this below).
  • Born 1951 – 1959, you need to begin taking your RMDs at the year you reach age 73.
  • Born 1959 and after, you need to begin taking your RMDs at age 75.

Deferring RMDs Using the Required Beginning Date

The IRS allows you to use your required beginning date to your advantage. According to current IRS rules, you can do the following just one:

  • Start taking your RMDs when you hit the specified age
  • Begin taking your RMDs on April 1 of the following year

For example, let’s assume that you turned 72 in 2022. In this case, you could have:

  • Taken your RMD before December 31, 2022
  • Taken your first RMD on April 1, 2023

If you defer the payment, you will not have to pay taxes on these funds for 2022. However, in 2023, if you deferred the payment, you will be taking your:

  • 2022 payment
  • 2023 payment

In 2023, you would have two distributions, which you’ll need to pay taxes on. Most people who have high incomes and are working in 2022 would want to consider deferring payment so that they don’t hit a higher tax bracket and have to pay a larger tax percentage.

Otherwise, it often doesn’t make sense to defer your first RMD payment.

With all of this said, you can only defer your first payment and will be required to take an RMD for every subsequent year that passes.

Examples of RMDs After the Secure Act 2.0

Jane Born in 1950

Jane turned 72 in 2022, meaning that she is required to take an RMD in 2022 or on April 1, 2023. If Jane does defer until April 1, she will need to take another RMD by December 31, 2023.

Tom Born in 1951

Tom will need to start taking his RMDs for 2024 when he turns 73. He can also defer this RMD until April 1, 2025.

Sandy Born in 1960

Sandy is 63 right now in 2023, and she is not close to the RMD age yet. However, she is under the Secure Act 2.0 and will need to take her RMD in 2035 when she hits 75. She can also defer her first RMD until April 1, 2036.

Note: You need to take your RMD no matter the time of year you were born. If you were born on December 30, you still need to take your distribution.

What Happens If You Miss Your RMD for the Year?

The IRS says that if you miss your RMD, there can be a penalty. We’ve seen people take their RMD late and make their tax payments, waiving this penalty in the past. However, you never know if the IRS will become less lenient and stop waiving these penalties.

If you turn 72 in 2022 and don’t take your RMD until after April 1, you need to:

  • Speak to us
  • Speak to an accountant

You can’t run from the IRS, so it’s better to rectify the matter now if you missed your RMD.

Secure Act 2.0 Only Matters If You’re Not in Your RMD

If you don’t fall within the new age brackets and are already taking your RMDs, the new Secure Act will not impact you at all.

RMD Logistics and Taking Your RMD

RMDs are based on your 1231 account values, and this figure is reported to the IRS. Instead of working through complicated calculations, call your advisor or the institution that is holding your money and ask them.

They will have the calculation done for you and be able to tell you how much you’re required to take out of your account(s).

In terms of how to take out your money, some clients will:

  • Take their RMD and then divide it by 12 to have a monthly payment
  • Withhold federal and state taxes
  • Take a lump sum, quarterly distribution, bi-annual distribution, etc.

You’ll need to sit down and determine the best way to take your distribution for you.

If you have any confusion about the Secure Act 2.0, we ask that you schedule a call with us, and we’ll be more than happy to answer any of the questions that you have.

Want a little more guidance on ways to secure your retirement?

Click here to view books that we’ve written on taking control of your retirement and how to secure it.

How the SECURE Act and Cares Act Affect Your IRA

Changes made in 2019 have affected a lot of people’s retirement accounts and how they work for their beneficiaries. It’s important for anyone with an IRA to know how the Secure Act and Cares Act affect their IRA because the changes are both good and bad.

The SECURE Act and Your IRA

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. Changes under the SECURE Act have both good and bad points, which have many people confused. These changes include:

Repeal on Age Restriction for Contributions

Before the ACT passed, you couldn’t contribute to your traditional IRA after you reached 70 ½. Now, you can continue making contributions after this age, which is beneficial for people that continue working after they reach 70 ½ age.

You will need to have eligible compensation to be able to make these contributions.

New 10% Early Distribution Penalty Exception

Exceptions are now given for adoption expenses along with the birth of a child. If you take distributions before 59 ½, any portion of the distribution that is taxable is subject to a 10% additional tax.

This is a steep penalty, and since most people don’t realize that they’ll suffer a 10% penalty until they do their taxes at the end of the year.

Under the new rules, there is a $5,000 exemption per participant if you want to take money out for qualified adoption or birth expenses. The changes are beneficial for anyone that plans to adopt or have a child and needs to find some way to pay for these expenses.

Death of the Stretch IRA

People save in retirement accounts because of tax deferment. You can allow compound interest to work for your retirement account and grow your money more without paying taxes now.

If you die, your beneficiaries can also leverage this same deferment to a certain extent.

Prior to the SECURE Act

A designated beneficiary could stretch distributions for your life expectancy. For a beneficiary, this was highly desirable because assets would remain in the account and grow year-over-year and only have to pay beneficiary required minimum distributions.

The practice was a great way to build wealth.

With a Roth IRA, the distributions became tax free with a qualified event, such as the death of the owner. For many beneficiaries, this was one of the most devastating changes under the SECURE Act.

The SECURE Act changed it so that the stretch IRAs now requires beneficiaries to drain the account in the first 10 years after the account owner’s death. The rule is in place for most non-spouse beneficiaries.

Distributions are optional from year 1 – 9, but if you don’t drain the account, you must increase it by the end of year 10.

A few exceptions are if the beneficiaries are:

  • Disabled
  • Chronically ill
  • Minor child
  • Spouse of the deceased

Even with a minor child, once the child hits the age of majority, the account is switched to the new 10-year period.

A lot of articles seem to miss on exception, which is if the beneficiary is no more than 10 years younger than the account owner. You’ll be able to take a distribution of the account over your lifetime.

What does this mean for you?

The stretch is available for older beneficiaries, which is a nice perk that is offered to eligible for certain beneficiaries. For any beneficiaries that are listed above, the stretch exists otherwise the SECURE Act does remove the stretch IRA.

Qualified Charitable Distributions (QCD) and Why You May Want to Make Them

QCDs shouldn’t be tied into your required minimum distributions. You can begin QCDs as long as you’re 70 ½ at the age of distribution. The Cares Act allows you to make a QCD without needing to take a required distribution.

A lot of financial managers are excited with changes to the QCD because, under the old rules, if you took a distribution from your retirement account, any pre-taxed amount is included in your income.

The exception is if you make a QCD to an eligible charity.

It’s vital that the charity be eligible because if the distribution is made to the charity, the distribution will be tax-free. You can do this up to $100,000 per person each year. Churches are included in this tax-free distribution treatment.

Note: Under the SECURE Act, you don’t have to start taking out your required minimum distribution (RMD) until you’re 72.

CARES Act and Its Importance to Your IRA, 401(k), etc.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act also has some important changes for your retirement accounts. Under the CARES Act, the RMDs aren’t required for 2020.

Under the CARES Act, if you lost your employment or income, you can take up to $100,000 in distributions from your account in 2020. You won’t need to claim 100% of the distribution on your taxes, but you can spread it across three years instead.

You’ll also not have to take a penalty due to the coronavirus-related distribution.

Qualifying for the distribution requires you to be a qualified individual, which falls into the following categories:

  • Test positive for COVID-19 (you, household member, etc.), or
  • Have your income, or a household member negatively impacted due to the coronavirus

If you took someone into your home this year, you could take this benefit if the person is experiencing hardship because of the pandemic. 

The IRS hasn’t mentioned how they will verify that your claims are true.

The CARES Act isn’t subject to that 10% early distribution penalty mentioned earlier.

Note: Many 401(k) plans don’t allow this distribution. You may be able to treat the distribution as a coronavirus distribution.

RMDs and 2021 Possibilities

A lot of advisers were uncertain of what changes may occur in 2021 as the pandemic lingered and even surged to start 2021. There was lot of speculation that there may be some RMD benefits, but this doesn’t seem to be the case as of April 2021.

It seems that those 72 or older will have to resume their RMDs in 2021, with a few changes to keep in mind:

  • You can postpone your 2021 RMD to April 1, 2022, but you will need to take two RMDs and risk having to pay higher taxes if the distribution puts you into a new tax bracket.
  • It’s expected that new legislation will take place in 2021, so you may want to hold off on your RMD because it’s possible that they could be affected.
  • Life expectancy tables have been updated by the IRS and will affect your RMD. The changes will reduce a 72’s first RMD by 6.57% under the change.

Congress has also signaled some interest in pushing the starting age for an RMD up to 75 years old, but it remains to be seen whether this type of legislation will be approved.

If you’re turning 72 this year, you will have to take your first RMD by April 1, 2022.

Overall, the SECURE and CARES Acts have changed IRA RMDs and have some tax advantages. If you’re confused about the changes, speaking to an adviser can add some clarity and help you make the most out of your retirement accounts.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.