#401k

By:  Arash Navi, CFP®, CPA, Controller & Wealth Manager

Our goal is to help our clients build and grow their wealth and tax planning plays an important role in this process. We recommend that you mark your calendar to review your finances in the first week of October, annually. Take this time to review your income for the year from employment, businesses, investments, or any other sources. This will help you project your tax liability ahead of time and allow your financial advisor or tax accountant to find strategies to reduce your tax burden. Implementing this consistently and reducing your tax burden annually will have a compounding impact over the years and increase your retirement nest egg. Here are a few tax planning strategies to keep in mind:

IRAs and Retirement Plans

Take full advantage of tax-advantaged retirement accounts. By contributing to Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans, you can reduce your taxable income and lower your taxes. For 2023, you can contribute up to $22,500 to a employer-sponsored retirement plan ($30,000 if you’re age 50 or older) and up to $6,500 to a Traditional IRA ($7,500 if you’re age 50 or older).

Roth Conversions

If you are in a lower tax bracket this year and expect your income tax rate to increase in the future, you may want to consider a Roth IRA conversion. You can convert all or part of your pre-tax retirement account into a Roth IRA and pay the taxes now at a lower rate. The funds in your Roth IRA will continue to grow tax free, and you will have more income flexibility in retirement. Watch here as we make a case for Roth conversions and how they could benefit you.

Charitable Donation

If you are charitably inclined, you should plan your donations in advance to ensure you maximize the tax benefits. For those over age 70.5, you may want to consider Qualified Charitable Distribution (QCD), where you can transfer up to $100K from your IRA to a charity. This method not only reduces your Required Minimum Distribution (RMD), but the distribution is also excluded from your taxable income. Beginning in 2024, the QCD limit ($100k) will change as it will be linked to inflation. Also, with the passage of the SECURE Act 2.0, starting in 2023 taxpayers may take advantage of a one-time gift up to $50k (adjusted annually for inflation) to fund a Charitable Remainder Unitrust, Charitable Remainder Annuity Trust, or a Charitable Gift Annuity. This is an expansion of the type of charity, or charities, that can receive a QCD.

Tax Bracket Management

The IRS uses a progressive tax system which means as your income grows, it is subject to a higher tax rate. Therefore, it is important to know which of the seven federal tax brackets you will fall into. In your high-income years, you may want to reduce your tax liability by increasing your retirement contribution or utilize a tax-loss harvesting strategy. On the other hand, in low-income years, you may want to consider Roth IRA conversions, accelerate income recognition, or postpone deductible expenses.

Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

In early 2022, the IRS issued proposed regulations regarding required minimum distributions (RMDs) to reflect changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The IRS has held off on releasing final regulations so that it can address additional changes to RMDs made by the SECURE 2.0 Act of 2022, which was passed in late 2022. In the meantime, the IRS has issued interim RMD relief and guidance for 2023. Final RMD regulations, when issued, will not apply before 2024.

Relief with respect to change in RMD age to 73

The RMD age is the age at which IRA owners and employees must generally start taking distributions from their IRAs and workplace retirement plans, though an exception may apply if an employee is still working for the employer sponsoring the plan. For Roth IRAs, RMDs are not required during the lifetime of the IRA owner.

The SECURE 2.0 Act of 2022 increased the general RMD age from 72 to 73 (for individuals reaching age 72 after 2022). Since then, some individuals reaching age 72 in 2023 have taken distributions for 2023 even though they do not need to take a distribution until they reach age 73 under the changes made by the legislation.

Distributions from IRAs and workplace retirement plans can generally be rolled over tax-free to another retirement account within 60 days of the distribution (RMD amounts cannot be rolled over). The 60-day window for a rollover may already have passed for some individuals who took distributions that were not required in 2023.

To help those individuals, the IRS is extending the deadline for the 60-day rollover period for certain distributions until September 30, 2023. Specifically, the relief is available with respect to any distributions made between January 1, 2023, and July 31, 2023, to an IRA owner or employee (or the IRA owner’s surviving spouse) who was born in 1951 if the distributions would have been RMDs but for the change in the RMD age to 73.

Tip: Generally, only one rollover is permitted from a particular IRA within a 12-month period. The special rollover allowed under this relief is permitted even if the IRA owner or surviving spouse has rolled over a distribution in the last 12 months. However, making such a rollover will preclude the IRA owner or surviving spouse from rolling over a distribution in the next 12 months. Note that an individual could still make direct trustee-to-trustee transfers since they do not count as rollovers under the one-rollover-per-year rule.

Inherited IRAs and retirement plans

RMDs for IRAs and retirement plans inherited before 2020 could generally be spread over the life expectancy of a designated beneficiary. The SECURE Act changed the RMD rules by requiring that in most cases the entire account must be distributed 10 years after the death of the IRA owner or employee if there is a designated beneficiary (and if death occurred after 2019). However, an exception allows an eligible designated beneficiary to take distributions over their life expectancy and the 10-year rule would not apply until after the death of the eligible designated beneficiary in that case.

Eligible designated beneficiaries include a spouse or minor child of the IRA owner or employee, a disabled or chronically ill individual, and an individual no more than 10 years younger than the IRA owner or employee. The entire account would also need to be distributed 10 years after a minor child reaches the age of majority (i.e., at age 31).

The proposed regulations issued in early 2022 surprised many when they suggested that annual distributions are also required during the first nine years of such 10-year periods in most cases. Comments on the proposed regulations sent to the IRS asked for some relief because RMDs had already been missed and a 25% penalty tax (50% prior to 2023) is assessed when an individual fails to take an RMD.

The IRS has announced that it will not assert the penalty tax in certain circumstances where individuals affected by the RMD changes failed to take annual distributions in 2023 during one of the 10-year periods (similar relief was previously provided for 2021 and 2022). For example, relief may be available if the IRA owner or employee died in 2020, 2021, or 2022 and on or after their required beginning date* and the designated beneficiary who is not an eligible designated beneficiary did not take annual distributions for 2021, 2022, or 2023 as required (during the 10-year period following the IRA owner’s or employee’s death). Relief might also be available if an eligible designated beneficiary died in 2020, 2021, or 2022 and annual distributions were not taken in 2021, 2022, or 2023 as required (during the 10-year period following the eligible designated beneficiary’s death).

*The required beginning date is usually April 1 of the year after the IRA owner or employee reaches RMD age. Roth IRA owners are always treated as dying before their required beginning date.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

Hiring the right advisor for your company’s retirement plan is one of the most critical decisions you will ever make as a plan sponsor. Many brokers and retail wealth managers dabble in retirement plan advisory services, but putting your plan in the hands of a non-specialist advisor can lead to expensive plan corrections, penalties, and poor retirement outcomes for your employees. Here are five things a Retirement Plan Advisor can provide that you won’t get from a non-specialist advisor:

1. Risk and Fiduciary Compliance – Is the regulatory landscape of retirement plans a complicated mess? Admittedly, yes. Staying apprised of the most recent legislation, regulation, court decisions, and departmental guidance affecting retirement plans is a full-time job, and it’s not an easy one. The stakes are too high to trust an advisor without the intricate knowledge to navigate the complex regulatory environment. 

• Influence – To put it plainly, service providers want to keep top advisors happy. Well-respected specialist firms have significant influence with vendors and can help you get the best pricing and service personnel for your plan. Vendors often assign more experienced relationship managers and operations teams to the clients of firms that specialize in retirement plans, and in cases where service has been underwhelming, Retirement Plan Advisors have more pull to request personnel changes.

• Coordinator-in-Chief – Retirement Plan Advisors know where to go to get problems fixed, and they speak the language of payroll providers, third party administrators (TPAs), and recordkeepers. When plan sponsors have questions about their retirement plan, their first call is often to their advisor, who can bring together the right parties to find the best solution.

• Big Cost Savings – A Retirement Plan Advisor knows which rocks to turn over to find the most meaningful cost savings. Administrative cost savings can be found through direct negotiations with vendors or the Request for Proposal (“RFP”) process, but it requires proper benchmarking beforehand to ensure plans are getting the best deal. Significant investment savings, ranging from thousands to hundreds of thousands of dollars, can be found by evaluating and properly selecting the share class of each investment in the plan. These savings can often be realized without changing a single investment manager in the plan.

• Big Time Savings – Tired of scheduling committee meetings, drafting agendas, writing meeting minutes, and following up with service providers? A Retirement Plan Advisor should be highly engaged and willing to take these items off your plate so you can focus on running your business.

Speak with one of our Retirement Plan Advisors today to see how your plan can realize these benefits and more!

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

A recent survey from TD Ameritrade showed only 27% of 401(k) participants knew how much they were paying in fees, and 37% mistakenly believed their retirement plan was entirely free! We’re here to set the record straight about 3 common retirement plan myths:

1. The Retirement Plan is Free – Don’t shoot the messenger, but retirement plan service providers do not work for free. If it appears your retirement plan has no explicit costs, it’s because your providers have done a great job of burying their compensation in the Plan’s investment options, and what you can’t see you can’t measure! If this is the case, you are required as a fiduciary to “know your Plan’s fees”.
2. All Participants Share Equally in Plan Fees – If your retirement plan utilizes revenue sharing to cover its administrative costs, chances are there is a highly unequal distribution of fees across your participants. Some investments may contribute nothing to the administrative costs of the Plan, while others may contribute more than is needed. 
3. The Plan’s Recordkeeper Already Provides Adequate Fee Benchmarking – Recordkeepers are in business to make money and they are not fiduciaries to your plan participants. While provider fees may well be reasonable, it is the responsibility of the plan sponsor to independently benchmark fees against the broader marketplace.

Reach out to one of our Retirement Plan Advisors today to see if your plan is receiving competitive fees from your service providers.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

The SECURE Act 2.0 was signed into law by President Biden in December 2022 and is guaranteed to impact your retirement plan. Here are 3 key provisions you should be aware of to keep your retirement plan in compliance:

1. Increased Participation for Long-Term Part-Time Workers

Many plans exclude employees who work less than 1,000 hours from participating in their retirement plan. Beginning in 2024, any employee who has worked at least 500 hours in the prior 3 consecutive years must be allowed to participate. The lookback period decreases to only 2 years beginning in 2025.

2. Catch-up Contributions for High Earners Are Changing

Beginning in 2024, all catch-up contributions for workers with wages over $145,000 (adjusted for inflation) during the previous year must be deposited into a Roth (i.e., after-tax) account. If your retirement plan does not currently offer a Roth contribution source, you may need to act quickly to ensure participants in this group may continue to make catch-up contributions.

3. Required Minimum Distributions (“RMDs’) Are Getting a Facelift

Several welcome changes are coming to RMDs. Already effective in 2023, the age at which a participant is required to begin taking RMDs has been increased from 72 to 73, and the age will ultimately rise to 75 in 2033. Beginning in 2024, participants will no longer be forced to take RMDs on any Roth balances in their account. This is great news for participants looking to avoid RMDs for retirement or estate planning purposes.

Optional Provisions to Enhance the Competitiveness of your Retirement Plan

SECURE Act 2.0 also affords plan sponsors a swath of new provisions that could benefit your employees. Items like higher catch-up contribution amounts, the ability to make employer contributions on a Roth basis, and providing employer matching contributions on student loan payments, might be of interest to your employees.

There are over 90 provisions included in this recent legislation, so speak with one of our Retirement Plan Advisors today to get more information on how you can take advantage of the SECURE Act 2.0 and turbocharge your retirement plan.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.