SECURE Act 2.0 & Market Outlook
Happy New Year!
I hope you had a fantastic end to your 2022 and are feeling refreshed and ready for 2023.
I wish I were bringing over some green smoothies and pressed juices to kick the year off. Instead, I have some new retirement rules for you.
Fun, right?
I'm going to try to make it easy for you.
(I've also got a big-picture question waiting for you in the P.S. if you prefer to just keep scrolling.)
Let's dive in.
After months of debate, Congress finally passed some major changes to retirement laws at the end of 2022.1
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changes are numerous, complex, and will roll out over several years.
So let's focus for now on some changes for 2023.2
1. The age at which required minimum distributions (RMDs) begin increased to 73 in 2023. This change impacts folks born between 1951 and 1959.
2. The penalty for missing all or part of an RMD decreased to 25% in 2023. However, if you correct the past-due RMD and pay taxes on it within two years, the penalty drops to 10%.3
3. Qualified Charitable Distributions have a few more options. Starting in 2023, folks who are aged 70½ or older can gift a one-time amount of $50,000 (adjusted for annual inflation) to a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA).4
4. Roth savings get a boost. Starting in 2023, employers can offer workers the choice to receive vested matching contributions directly to their Roth account, where they’ll grow tax-free.2 Also, Roth contributions to SIMPLE and SEP IRAs are authorized in 2023.5 However, we'll have to wait for the IRS and custodians to work out procedures before folks can take advantage of these new opportunities.
5. More folks can take early distributions from their retirement accounts without penalty. Starting in 2023, victims of disasters and folks who are terminally ill will be able to access their retirement accounts early without incurring a 10% penalty.6 There's plenty of fine print, so let's have a conversation if you think you might be eligible.
Bottom line: There’s A LOT to unpack in the new laws. Many new rules, including changes to catch-up contributions and 529 plans, will roll out in 2024 and 2025.
As we’ve learned with previous new regulations, Congress might enact new laws, but we often have to wait for the IRS and other agencies to catch up before we can fully make use of them.
Stay tuned for more updates as the new rules shake out.
What's Happening in the Markets...
The economy is turning the page with COVID, and we're seeing an easing of inflationary pressures based on economic data, which shows signs that the economy is heading toward an uneven (and soft) recession. The Fed is obligated to talk tough on rates to avoid inflation from sneaking up on us again.
While we continue to expect a recession, we believe it will be uneven and mild. This will put the silver bullet into the inflation vampire. In fact, since February 2022, goods inflation has risen just 1.0%. This makes sense as goods inflation was a byproduct of COVID and has faded into the past as clogged ports and high shipping container costs remain a thing of the past.
Of course, services inflation remains stubbornly high (have you tried booking a trip to family vacation lately?). However, a large part of this is simply due to how the CPI number for services is calculated, which is heavily weighted toward current market rents and home price data. Both are lagging indicators and can take 12 months to show up in the CPI reading. Ultimately, the Fed is waiting for confirmation that its actions are finally breaking not just the services sector but the labor market as well.
While we expect many twists and turns and a soft recession in 2023, we reaffirm our belief that intermediate- to long-term investors will be rewarded from these levels. We believe the most important new year’s resolution an investor can make is to have a financial plan, to keep it updated, and to stick with it through good times and (more importantly) tough times.
Do you have any questions right now? Just hit "reply" and let me know. We'll schedule a time to chat.
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P.S. Are you a new year’s resolution person? If so, what did you resolve to do this year? Will you share it with me?
If not, what's exciting to you about 2023?
Hit "reply" and let us know. I'd love to hear about it.
Sources:
1. https://www.plansponsor.com/official-secure-2-0-law/
2. https://www.fidelity.com/learning-center/personal-finance/secure-act-2
3. https://www.kiplinger.com/retirement/new-rmd-rules
4. https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html
5. https://tickertape.tdameritrade.com/retirement/secure-act-2-0-now-law-how-it-s-likely-to-change-your-retirement-planning--19304
6. https://www.jdsupra.com/legalnews/secure-2-0-changes-rules-for-retirement-9979502/
