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New Tax Planning Ideas with Secure Act 2.0

You’ve probably been reading about the retirement savings changes brought about by the passage of the Secure Act 2.0 in late December 2022, so I’m not going to recap them all again here. Instead, I’d like to pick a few changes that that improve your tax planning opportunities. How can we put this new law to your best use?

First, the easy one is that the Required Minimum Distribution (RMD) age was increased to age 73 if you’re born in the years of 1951 – 1959, and to age 75 if you’re born in 1960 or later. (If you were already subject to RMD’s, having been born in 1950 or before, there are no changes for you.) How does this help? More time for systematic multi-year Roth IRA conversions, especially while we are still in our low tax rate environment through 2025. As a reminder, Roth conversions are the process by which you move some portion of your IRA to a Roth IRA, paying tax on the conversion, but then forever shielding the amount moved in a tax-free Roth account. Roth IRA’s insulate you from future tax increase, which are sure to come, and provide a tax-free legacy for your heirs. That’s a win-win for you and your family! Now you have more time to keep converting before your taxable RMD’s begin and crowd out the room on your tax return that could otherwise be used toward Roth conversions.

Second, a new beneficiary strategy jumped out at me, that I think is important to discuss. Starting in 2024, a spouse who inherits an IRA as a primary beneficiary will have the option to be treated AS the deceased spouse. Huh? While I don’t have room to talk about all of the spousal beneficiary IRA options in this article, suffice it say that up until now most surviving spouses rolled over the IRA into her own name and took RMD’s based on her own age. But under this new rule, let’s say that the deceased husband is younger than the surviving wife and now the wife can use her younger husband’s age to determine when she has to start RMD’s instead of her own. This could delay taxable RMD’s to her by several years, and then when they do start, the RMD’s will be smaller than if she used her own, older, age. It’s REALLY important that surviving spouses understand when this option would be to their benefit.

Long story short, tax planning opportunities abound. No need to be complacent when it comes to taxes – smart tax strategies keep you from paying more than your fair share.


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