February 5, 2024 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 February 5, 2024

Preparing To File Your 2023 Taxes in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Taylor discuss how to prepare to file for the 2023 taxes. The first things you should be looking at include your different sources of income and tax forms connected to that income. Listen in to learn the importance of working with a professional tax preparer to avoid misreporting different income taxes.


Preparing To File Your 2023 Taxes in Retirement

Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable. Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience. What do you need to be thinking about when preparing to file your 2023 tax return?

2023 Tax Planning to Tax Preparation in Retirement

Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable.

We’re going to be covering all the insights she provides in the podcast below, but feel free to listen to the episode, too.

Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience.

What do you need to be thinking about when preparing to file your 2023 tax return?

Gather Tax Forms

  • Report all 2023 Sources of Income; to name a few:
    • W-2 from your employer
    • Self-employment income and all amounts reported on 1099-NEC (nonemployee compensation)
    • 1099-INT for interest income 
    • 1099-DIV and/or 1099-B for investment income
    • 1099-R for IRA/401k/annuity/pension account distributions
    • SSA-1099 for Social Security benefits
    • Documentation of rental income
    • Any other income that applies to your situation

With money market interest rates around 4% – 5% this year, the interest reported from those accounts will likely be higher than you’re used to. If you made transfers to and from accounts in 2023 to take advantage of higher interest rates or for any other reasons, be sure that you track down your tax forms from both institutions. 

Rental Properties

Rentals are popular and allow you to make an income from properties you own throughout the year. We have many clients with rentals who will need to report this source of income on their tax return. Supply your tax preparer with as much documentation as you have available; deducting expenses associated with your rental property will lower your overall tax bill.

If you have an Airbnb or long-term rental, consider the following:

  • Work with a CPA/professional tax preparer to not avoid misreporting information
  • Maintain documentation on your rental income
  • Maintain documentation for all expenses relating to the rental
    • Include mortgage interest from your form 1098

Standard Deduction vs Itemization

Everyone who files a tax return can at least take the standard deduction. If you had certain expenses during the year that add up to a value greater than the standard deduction, you can use that value as an itemized deduction instead. If those expenses add up to less than the standard deduction, you’ll take the standard deduction since that will offer the greatest benefit in lowering tax liability.

Itemized deductions include:

  • Mortgage interest
  • Real estate property taxes on primary home
  • Personal property taxes
  • Charitable donations (subject to dollar limitations)
  • Medical expenses (subject to dollar limitations)

It can be a lot of work to gather the above information, but especially if you’ve just started working with a tax preparer that is new to you, it may be worth submitting all of these documents to see the outcome. If you took the standard deduction last year and these items haven’t changed much, you probably don’t need to supply all of these documents. Every person is unique and there’s no right or wrong answer for everyone.

Note: For the year during which you turn age 65, your standard deduction increases. Verify your date of birth with your tax preparer to be sure you are receiving the additional standard deduction; otherwise, you may be unnecessarily overpaying taxes.

Reporting QCDs on Your Tax Return

Qualified charitable distributions (QCDs) are something we talk a lot about because they’re such a valuable tool for anyone who is charitably inclined. You can donate to whatever charities you’d like to support while reducing your tax bill in doing so. As an example, let’s assume you’re in the 22% tax bracket and made a $1,000 QCD. As long as you meet the requirements, you’ll save an immediate $220 in federal tax. 

Overview on QCDs:

  • Must be over age 70.5 when the donation is made
  • Donation must be distributed directly from your IRA and be sent to a 501(c)(3) charitable organization
  • Limited to donating $100,000 through this method in 2023
  • The donated IRA distribution is completely federal and state tax free because you won’t claim the distribution as income on your tax return

QCDs are reported as normal distributions on form 1099-R from your IRA. For that reason, you will need to be the one to provide the additional context to your tax preparer by letting them know the dollar amount of the QCD. For example, let’s assume you took $50,000 in distributions from your IRA and also made a QCD of $5,000 from the same IRA account in 2023. Your 1099-R will show $55,000 in distributions with no specification that $5,000 went to charity. You need to be the one to let your tax professional know to input the $5,000 as a QCD. Otherwise, it may be reported as a fully taxable distribution which negates the whole purpose of QCDs and may result in an unnecessary overpayment in taxes. 

Reporting Roth Conversions and Contributions on Your Tax Return

Like QCDs, tax forms reporting Roth conversions will not differentiate Roth conversions from normal distributions. It is true that whether it was a distribution to your checking account or a conversion to your Roth IRA, the distribution is taxed the same; however, not specifying that it is a conversion can have other consequences. 

If you’re under age 59 ½, you cannot take a normal distribution from an IRA without penalty (unless you meet certain exceptions), but you are eligible for Roth conversions at any age. It will be helpful for your tax preparer to know the additional context around the dollar amount of the Roth conversion to eliminate any unnecessary penalties that would otherwise attach to early distributions from an IRA. 

The second important specification is not just that it was a Roth conversion, but WHEN it was processed. If the WHEN is not communicated to the tax preparer, it could put you in danger of owing unnecessary underpayment penalties. For example, one of our clients did a Roth conversion in November and paid estimated taxes in November. Since the IRS is a pay-as-you-go system, they want you to pay taxes at the same time you’re receiving income/distributions, so the timing is another detail that will be important for your tax preparer to be aware of.

Context matters!

Reporting Contributions on Your Tax Return

Roth IRA contributions will not impact your taxes and are not reported on tax returns at all. You will receive a form 5498 from the account you contributed to, but oftentimes, this form isn’t available until May. You don’t need to delay submitting your tax return until you receive this form as it is just to show the contributions that you made.

If you do have any questions and are a client of ours, feel free to give us a call and we’ll help clarify anything that we can.

Want to schedule a call with us?

Click here to book a call or reach us at (919) 787-8866.

How Secure Act 2.0 Could Affect Your Retirement

Denise Appleby was our special guest this past week. She’s our consultant for IRA and 401(k) planning, and she is an invaluable asset for our clients. However, this week she’s sharing her insights into the Secure Act 2.0, which could affect your retirement in a few significant ways.

Quick Background on the Secure Act 2.0

The Secure Act 2.0 was passed the last week in December 2022, and everyone is scrambling to:

  • Learn the rules
  • Changes that we need to know about
  • Who we need to contact

With thousands of pages to go through, the Act has a lot of significant rules that everyone needs to understand. Denise is here to help us understand some of the changes in 2.0.

Note: Even though the Act was signed very late in the year, the changes went into effect on January 1, 2023. 

Secure Act 2.0 Updates You Need to Know

Secure Act 1.0 changed the required minimum distribution (RMD) age from 70 ½ to 72. Secure Act 2.0 changes these dates further, but now there’s a calendar to deal with. If you have already reached 72 before 2023, you should be taking your RMD. However, if you turn 72 after 2022, the RMD starts at 73.

The problem is that a lot of custodians sent out letters stating that people turning 72 could wait to take their RMD until 73. Custodians simply weren’t given enough time to make changes on their end to stop these mails from going out.

What Happens If You Took Your RMD Even Though You Needed to Take It at 73 Instead?

The good news is that the distribution isn’t an “RMD” in this case. Instead, you can roll it over to next year. If you reach 72 in 2023, you have the option to roll the money that you take out.

Typically, when you take an RMD, you have to include it in your income for the year unless an exception applies.

In this case, the exception is that you can take the RMD and roll it back into your IRA or 401(k). You normally need to do the rollover within 60 days of receiving the funds. A rollover isn’t taxed, so you don’t need to claim this money. The IRS does permit a self-certification procedure that will allow for a rollover even if 60 days have passed.

There’s one issue: you can only perform one rollover per 12 months. If you rollover a traditional to a Roth account in the past 12 months, then you cannot rollover the RMD.

Missing the Deadline and an Excise Tax

Secure Act 1.0 had an excise tax of 50%. If you missed your RMD of $10,000, you would pay a 50% tax or a $5,000 penalty. Thankfully, Secure Act 2.0 has changed this excise tax to 25%. Additionally, there’s a correction period in place under the new Secure Act modification.

If you take your RMD during this correction period, you only pay an excise tax of 10%.

There’s also a chance that you can have the excise tax waived completely, and this is obviously something to pursue because you should never be paying more taxes than absolutely necessary.

We never want you to pay an excise tax. If you’re unsure whether you need to take an RMD or not, be sure to call your advisor.

Annuity and IRA Aggregation

Secure Act 1.0 states that if you have an annuity that has been annuitized and a regular IRA, you cannot aggregate these accounts. 

What does aggregation mean?

You calculate the RMD for IRA A and IRA B, and you can take the RMD that you want from these. However, in Secure Act 2.0, you can now aggregate these amounts, meaning you can aggregate your annuity and IRA now.

For many people, it’s a break if you have more than enough from an annuity and don’t need to take the RMD. Now, the person doesn’t need to take the RMD.

Designated Roth Account RMD Changes

Many people question why they need to take an RMD on their Roth accounts. Now, the beneficiary of the account needs to take an RMD but now the owner. Designated Roth accounts no longer need to take an RMD, starting in 2024.

Terminally Ill Provision

If you’re terminally ill and a doctor certifies that you have an illness that can result in death in 84 months, the 10% penalty for withdrawing funds early is eliminated under a special tax treatment.

Domestic Abuse Provision

In 2024, penalty-free distributions to anyone who experiences domestic abuse are now possible. Unfortunately, this rule only comes into effect in 2024, but it can help anyone in a domestic abuse situation find relief.

529 Provision to Rollover into a Roth IRA

One exciting change is with a 529 plan used for college savings. However, when you’re putting money into these accounts, it’s impossible to know whether the person will receive a scholarship. Under the Secure Act 1.0, any additional money left over that is not used for education expenses is subject to income tax and a 10% early distribution penalty.

A change in the Secure Act 2.0 allows you to rollover $35,000 (lifetime) into a Roth IRA account from a 529.

There are a few stipulations:

  • Annual amounts moved cannot be more than what you put into your regular IRA contribution
  • Contributions to traditional or Roth IRA must be added up to know how much you can rollover from the 529
  • Funds must be a direct transfer from the 529 account to the Roth account
  • Funds transferred from the 529 account must have been in the account for the past five years in hopes of stopping people from gaming the system

If you have the 529 company deposit the money into your account and then you transfer it to the Roth account, this will not count. You need the transfer to go from one institution to another without it ever touching your account.

Transferring the money from a 529 to a Roth account must be transferred back into the beneficiary’s account. You cannot transfer the funds from this account back into your own unless you’re going back to school and have the funds transferred to a 529 for you.

Biggest Mistakes in IRA Planning

We couldn’t help but ask Denise about the biggest mistakes she sees in IRA planning. She tells us that the biggest mistake she sees, which doesn’t happen often, is moving assets. Many people rollover their accounts multiple times in a single year, breaking the once-a-year rule for rollovers.

Once these multiple rollovers happen, it’s often too late to correct this year.

You’re allowed one 60-day rollover per year. However, this only happens if you have the check made out to you, the funds hit your bank account and then you put it into a new account via a rollover.

However, if the rollover goes from one institution to the next, such as Schwab to Fidelity, these types of transfers can happen as many times as you want.

Often, there are solutions that the IRS allows if something happens and you cannot meet deadlines. It’s important to speak to your advisor to understand your options and how you may be able to prevent penalties, taxes or other issues along the way.

Click here to schedule a call with us if you have any questions about the Secure Act 2.0.

P.S. If you want to learn more about changes to the Secure Act 2.0, head over to RetirementDictionary.com, where Denise shares her insights with readers.

January 9, 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 9, 2023 

This Weeks Podcast – 10 Tax Tips For The Beginning 2023

Do you want to keep your tax planning smooth as you set goals for this year? As you think about getting ready for the tax season and setting goals for 2023, we know you want to make your life a bit simpler.

We discuss things like tax-free sources of income, Roth conversions, tax withholding, Required Minimum Distributions, and much more.


This Weeks Blog – 10 Tax Tips For The Beginning 2023

With 2023 here, one thing that you want to consider when retirement planning is taxes. You never want to spend more money on taxes than necessary, and that’s why we’re starting this year off by walking you through tax tips.

10 Tax Tips for The Beginning of 2023

With 2023 here, one thing that you want to consider when retirement planning is taxes. You never want to spend more money on taxes than necessary, and that’s why we’re starting this year off by walking you through tax tips. 

10 Tax Tips to Start 2023 Off Great

1. Take Advantage of Tax-free Income

Tax-free income is ideal, and you likely have:

You may have to pay taxes on all of these sources of income. However, you may have tax-free income that you can begin to take:

  • Roth IRA distribution (not the ideal source of income to start off retirement)
  • Savings 

Using savings for your source of income this year can help you with Roth conversions, avoiding capital gains or Social Security payments, too.

If you consider where your income is coming from, it will allow you to at least leverage tax-free income to your advantage this coming year.

2. Consider Traditional to Roth IRA Conversions

Converting a traditional IRA account to a Roth account may be in your best interest. First, you can allow your money to grow tax-free. Second, if someone inherits these accounts, they benefit from the tax-free account, too.

You will need to pay taxes during the conversion, and this hits on point 1, too.

If you can use tax-free income during the year of your conversion, you may be able to stay in a lower tax bracket and save money on taxes.

3. Review Your Tax Withholding

If you’re early in retirement, you might find yourself:

  • Under-withheld
  • Overpaid 

In both cases, it’s better to be right on the mark with your taxes. If you overpay, there’s no penalty, but you also can’t grow this money if it’s in the government’s hands. We can review these withholdings with you to ensure that you’re not paying too much or too little to the government.

4. Track Medical Expense Deductions

Medical expenses may or may not be deductible, but you need to have these expenses outlined in either case. You can deduct some of these expenses, and your accountant will need this information to know if itemizing and medical expenses can reduce your tax burden.

5. Take Advantage of Charitable Contribution Deductions

If you don’t itemize your taxes, you may still be able to leverage charitable contributions. You may be able to use:

  • Qualified charitable distributions, which will take money from your IRA directly and gives it to charity without the money ever hitting your bank account.
  • Donor-advised funds. You can stack your contributions over a multi-year period into a single year to reduce your taxes if you use one of these funds.

Anyone who is charity inclined can take advantage of their charitable contributions to reduce their taxes.

6. Don’t Forget About Quarterly Payments

Quarterly payments are foreign to a lot of people who are just transitioning to retirement. You may have gains throughout the year that are realized, and the government can assess a penalty because they expect to be paid on this gain as it happens.

For example, if you sell a stock or a house, you may need to make a quarterly payment.

Sitting down with your accountant or tax advisor can help you better understand if you need to make quarterly payments or not.

7. Don’t Forget About State Taxes

State taxes must be considered, too. It’s easy to focus on your federal taxes and forget that the state wants their money, too. If you do live in a state that collects income tax, keep this in the back of your mind throughout the year.

8. Consider Part-time Work

When you’re planning for retirement, you may or may not consider part-time work. A lot of our clients become consultants and others will take on a part-time job to stay busy, cover medical insurance or just generate some additional income.

Working part-time may also open the doors for other things, such as:

  • Eligibility to contribute to retirement plans
  • Taking advantage of benefits
  • Traveling more during retirement

9. Don’t Forget About Required Minimum Distributions

Folks who are 72 or older will need to take their required minimum distributions (RMDs). You can take a monthly payment or a full payment upfront, too. In all cases, you need to make sure that you’re meeting the RMD thresholds every year.

If you’re just turning 72, we highly recommend giving us a call at (919) 787-8866 to discuss RMDs and to better understand how much you need to take out of these accounts each year.

10. Keep Track of Your Tax Documents

You’ll begin receiving mail in February that you need to compile together and give to your accountant. If you don’t keep track of these documents, you’ll need to scour for them rapidly, which is never fun.

A few of the documents that you’ll receive include:

  • 1099s from investment accounts
  • 1099s from Social Security
  • W-2s

Organizing all of these documents is a great way to start the year, whether you’re working with a CPA or doing taxes yourself. It’s good practice to have a system in place to manage all of your taxes, receipts and similar documents throughout the year.

Being fully prepared when going to your CPA will make taxes a lot less stressful in 2023.

We hope that these tax tips will help you go into the year with confidence, knowing that you have everything in order to meet your tax obligations but never pay more than necessary.

If you have any questions, please feel free to schedule a call with us today.