Getting A Head Start On The 2023 Tax Season

It’s no secret we all dislike paying taxes, which is why many Americans tend to put off filing theirs until the last minute. If you want to avoid the April panic, planning ahead for the upcoming tax season is a smart move that can save you stress later on.

A solid tax plan is especially beneficial for retirees, and those near to retirement, as it can help you make the most of your retirement income while avoiding unexpected tax surprises. 20-25% of Americans wait until the final two weeks before the tax deadline to start preparing their tax returns. At that point, you only have two choices: rush to file your taxes or request a tax extension.

At Agemy Financial Strategies, our goal is to provide you with the necessary tools to make informed and on-time tax decisions. As we look ahead to preparing you for the upcoming tax season, here are some important tips to keep in mind.

Stay Organized

Having everything in one safe and designated place can help make the preparation of your income tax return easier. Some of the documents that might be required to complete the process include:

  • Form W-2 (your employer must mail the form, which shows your earnings and taxes withheld, by Jan. 31)
  • Form 1099-INT, for interest earned, such as from a savings account
  • Form 1098, Mortgage Interest Statement, shows mortgage interest paid on a loan for your home and receipts for all purchases and payments, including those for business, healthcare, and education.
  • Older adults have special tax situations and benefits, like Form 1040-SR.

Understanding how these forms can affect you and your taxes is paramount if you don’t want to unnecessarily overpay Uncle Sam. Get general information about how to file and pay taxes, including many free services, by visiting the IRS Individuals page.

Avoid Common Mistakes

Retirees should be particularly careful when filing their tax returns, as common mistakes can delay the processing of the return or the refund they are owed. One of the most significant errors is missing tax forms. This includes forms mentioned above, such as 1099’s, which may occur if you receive investment income.

Although it’s easy to overlook tax filing forms, the IRS receives copies and will expect that information to be included on your return. Other common mistakes include the following:

  • Incorrect spelling or digits for your name.
  • Incorrect birth date.
  • Incorrect Social Security number.
  • Incorrect bank account and routing number information.

It’s crucial to double-check all information before submitting your tax return. Review all information in detail before submitting your tax return, and consider filing electronically to streamline the process. Taking these steps can help ensure a smooth and stress-free tax filing experience.

Understand New Tax Bracket Adjustments

When preparing to file your tax return for the 2023 tax year, it’s important to take note of significant changes compared to 2022. While the tax rates have remained unchanged, there has been a notable 5.4% increase in the federal income tax brackets.

This increase effectively expands the taxable income thresholds within each bracket. You can calculate your taxable income within a bracket by subtracting the standard or itemized deductions from your adjusted gross income. Due to the increase, the standard deduction has also seen adjustments. Married couples filing together can now claim a standard deduction of $27,700, up from $25,900 in 2022. Single filers are eligible for a standard deduction of $13,850 in 2023, a marked increase from the previous year’s $12,950. See the following tables for a detailed view of how tax brackets will change based on your reported income.

Important Tax Considerations for Tax Season

In addition to understanding the tax bracket adjustments and standard deduction changes for the 2023 tax year, there are a few other essential factors that require your attention:

  • Tax Breaks for Vehicle Purchases and Home Energy Improvements: If you acquired a vehicle during 2023 or made energy-efficient enhancements to your home, you may qualify for valuable tax breaks. The Clean Vehicle Tax Credit carries a maximum cap of $7,500.
  • IRS Reporting Change Delay: It’s worth mentioning that the IRS postponed a reporting change scheduled for 2023 concerning business payments made through apps like PayPal or Venmo. Before this change, even a payment of $600 or more would have triggered the issuance of Form 1099-K, which reports such business payments to the IRS.

Stay informed and take advantage of these changes to help ensure your tax return for 2023 is as accurate and beneficial as possible.

You Can Get an Extension to File— But Not to Pay

For retirees who cannot file their tax returns by the April 18 deadline, the IRS allows them to request a six-month extension. This extension can be helpful in situations where a taxpayer is missing a tax form or needs additional time to prepare their return. Taxpayers can request an extension for free via IRS Free File, regardless of their income.

It’s essential to note that while an extension will give retirees additional time to file their returns, it doesn’t extend the deadline to pay their federal taxes. The tax bill has to be paid by the April 18 deadline. In cases where a taxpayer is missing a tax form, they can estimate their tax bill by using tax software and inputting estimates for any missing forms.

It’s also worth noting that requesting a federal extension doesn’t automatically extend the deadline for state tax returns. Those who need additional time to file their state tax returns must request a separate extension. There is no penalty for filing an extension. However, not paying on time or enough, or failing to file altogether, may cost you.

  • If you don’t pay the full amount you owe, the IRS will charge you interest on the unpaid balance until you pay the full amount.
  • You may be subject to a late payment penalty if you don’t pay at least 90% of what is owed. The penalty is usually half of 1% of the amount owed each month, up to a maximum of 25%.
  • You may be subject to a late filing penalty if you don’t file your return or Form 4868 by the tax filing deadline. The penalty is usually 5% of the amount you owe each month, up to a maximum of 25%.

After you file the extension, you’ll have until October 16 to gather your documents and finish your filing.  When you complete your return, you should include the amount you’ve already paid in the payments section of your Form 1040.

Tax Planning With Agemy Financial Strategies

Tax planning is an important aspect of an overall retirement strategy that should not be overlooked. Understanding your tax obligations now can help you enjoy a more secure financial future.

While certain taxes may be deferred, others can be minimized through tax-efficient investment planning. That is why a fiduciary advisor can be a valuable resource for those seeking to navigate the complexities of tax planning.

At Agemy Financial Strategies, we can help you explore your options to help ensure you’re not missing out on tax strategies that could boost your retirement savings. From reassessing your investments to postponing RMDs, Agemy Financial Strategies has over 32 years of experience in tax-strategizing to maximize retirement income in your golden years.

Let us help you create a personalized tax plan with a complimentary strategy session. Set yours up here today.

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Get a Head Start on Tax Season: Build a Tax-Smart Portfolio

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For high-net-worth individuals (HNWIs) nearing retirement, preparing for tax season now can make a significant difference in preserving your wealth.

Wealthy Americans contribute a significant share of the nation’s tax burden. According to a recent study, the top 1% of earners will contribute 23.9% of all taxes despite earning only 20.1% of total income. This disparity highlights the need for strategies that minimize tax liabilities and protect your hard-earned wealth.

Focusing on tax efficiency in your portfolio can help optimize your wealth preservation strategy and avoid surprises when tax laws shift. From smart asset location strategies to planning for long-term capital gains, now is the time to take proactive steps to keep more of what you’ve earned. Here’s what you need to know.

Why Tax Efficiency Matters in Retirement Planning 

Without proper planning, taxes can erode a significant portion of your retirement income. According to the Tax Foundation, high-income individuals in the U.S. can face marginal tax rates as high as 37% at the federal level. Factors in state taxes, capital gains taxes, possible future law changes, and the need for a tax-efficient portfolio become clear. For retirees, particularly HNWIs, managing tax liability is more than compliance; it’s about creating sustainable wealth for years. A tax-efficient approach can help you:

  • Minimize taxes on investment returns.
  • Protect long-term gains.
  • Align your portfolio with changing tax policies.

Understanding how and where your assets are invested can be key to achieving this. Let’s look at some strategies to help you prioritize tax efficiency.

1. Smart Asset Location: Putting Investments in the Right Accounts

One of the most powerful tax efficiency strategies is asset location, which involves strategically placing different types of assets in specific accounts to help minimize tax liability. Asset location is separate from asset allocation, which involves diversifying investments. Instead, asset location focuses on which accounts hold which investments.

Tax-Deferred Accounts (e.g., 401(k), Traditional IRA)

Tax-deferred accounts are ideal for investments that generate income or frequent dividends, as these will be taxed later when withdrawn, typically in retirement. Examples include bonds (interest payments), actively managed funds, and real estate investment trusts (REITs).

Taxable Accounts

Taxable brokerage accounts can be better suited for investments that are tax-efficient by nature, such as:

  • Certain individual stocks (held for long-term gains).
  • Certain index funds (low turnover and fewer taxable events).
  • Certain municipal bonds (potentially tax-free interest income).

Tax-Free Accounts (e.g., Roth IRA, Roth 401(k))

Tax-free accounts, where withdrawals in retirement are generally not taxed, are potentially valuable for assets with the potential for high growth, such as:

  • Certain stocks are expected to appreciate significantly over time.
  • Certain mutual funds or ETFs.

Placing your investments in the right accounts can help reduce the taxes you owe over your lifetime. As always, it’s important to consult your advisor to see if these investments are a good fit for you and your specific situation.

2. Leveraging Long-Term Capital Gains for Greater Tax Efficiency

Understanding the distinction between short-term and long-term capital gains is essential when creating a tax-efficient portfolio. Short-term capital gains (on assets held less than one year) are taxed as ordinary income, while long-term capital gains (on assets held for more than a year) enjoy significantly lower rates. The table below shows the capital gains tax rates for 2025:

Capital gains tax

 

For HNWIs, long-term strategies are particularly important. Here are some ways to help you optimize:

  • Hold Investments Longer: You can benefit from lower long-term rates by holding onto assets for over a year.
  • Tax-Loss Harvesting: Offsetting capital gains with losses from other investments can help reduce your taxable income.
  • Gifting Appreciated Assets: Gifting long-term appreciated assets to family members in lower tax brackets can help minimize overall tax exposure while supporting your loved ones.

3. Proactively Planning for Future Tax Law Changes 

Tax laws can change, and for HNWIs, staying informed and flexible is key to tax efficiency. For instance, the Tax Cuts and Jobs Act (TCJA) lowered tax rates but will sunset at the end of 2025, which could mean higher taxes for many individuals. Being proactive now can help mitigate the impact of these changes later. Here are some key strategies to consider:

  • Roth Conversions: Converting assets from a traditional IRA to a Roth IRA can help you pay taxes at today’s lower rates, locking in tax-free growth for the future.
  • Diversifying Tax Buckets: Balancing your investments across taxable, tax-deferred, and tax-free accounts can help you remain flexible as tax laws change.
  • Monitor Income Thresholds: Keeping taxable income below certain thresholds can help you avoid the Medicare surtax and other income-related taxes.

Working closely with a fiduciary advisor who monitors the tax landscape can help ensure you remain one step ahead.

4. Maximizing Retirement Account Contributions

Retirement accounts provide valuable tax advantages, and maximizing your contributions now can lead to significant long-term benefits. For 2025, contribution limits are as follows:

  • 401(k): Up to $23,500, with an additional $7,500 catch-up contribution for those aged 50 and older.
  • IRA: Up to $7,000, with an additional $1,000 catch-up contribution for individuals aged 50 and older.

Maximizing contributions to tax-advantaged accounts can defer income taxes and allow your investments to grow tax-deferred or tax-free, depending on the account type. To make the most of these opportunities, consider consulting a fiduciary advisor who can help you develop a strategy tailored to your financial goals.

5. Prioritizing Tax-Efficient Investments

Certain types of investments are inherently more tax-efficient than others, making them more ideal for taxable accounts.

  • Index Funds and ETFs: These investments are known for low turnover and fewer capital gains distributions, helping reduce your tax burden.
  • Municipal Bonds: For investors in high tax brackets, municipal bonds offer interest income often exempt from federal taxes (and sometimes state taxes).
  • Tax-Managed Funds: These funds are actively managed to help minimize capital gains distributions, making them suitable for taxable accounts.

Prioritizing tax-efficient investments can help you enhance after-tax returns and preserve more of your wealth.

The Importance of Proactive Tax Planning 

Tax efficiency is not a once-a-year activity; it requires a year-round, proactive approach. At Agemy Financial Strategies, we pride ourselves on providing personalized, fiduciary-based advice that prioritizes your best interests. Here are some areas where we can help:

  • Continuously monitor the tax implications of your investments to identify opportunities to save.
  • Adjust your strategies as tax laws evolve, allowing your portfolio to remain optimized under current regulations.
  • Implement charitable giving, Roth conversions, and tax-loss harvesting techniques at the right time to help minimize your tax burden.
  • Provide personalized guidance to help you balance short-term needs with long-term tax planning strategies tailored to your financial goals.

Our team is dedicated to helping you incorporate tax efficiency into your retirement planning strategy, which can help you prepare for tax season and a tax-optimized future.

Plan Now for a Tax-Efficient Retirement

Getting ahead of tax season means more than filing your return early. It means building a retirement portfolio to minimize taxes and maximize long-term wealth. Focusing on strategies like asset location, long-term capital gains, and proactive planning can help you take control of your tax liability and create a more stable financial future.

At Agemy Financial Strategies, we help individuals optimize their portfolios for tax efficiency. Our fiduciaries understand the importance of wealth preservation and proactive planning for HNWIs approaching retirement.

Contact us today to learn more about how we can help you navigate tax-efficient strategies tailored to your financial goals.

Disclaimer: This blog is for informational purposes only and does not constitute financial, tax, or investment advice. The content is not intended to be a solicitation or recommendation for any specific financial product or service. Tax laws and regulations are subject to change, and the information presented may not apply to your individual circumstances. Please consult the fiduciary advisors at Agemy Financial Strategies for personalized advice regarding your financial situation.

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Pros and Cons of Holding Digital Assets in a 401(k)

With the evolution of Bitcoin and other digital assets dominating the financial headlines for more than a decade, it stands to reason that many retirement investors are wondering if crypto has a place in their 401(k). 

In this blog, we will explore the pros and cons of holding digital assets in a 401(k) or similar employer-sponsored retirement plan and explain how a financial advisor can be instrumental in making informed investment decisions. Here’s what you need to know.

What Are Digital Assets?

Digital assets are virtual or electronic representations of value that exist in digital form and can be owned or controlled by individuals or entities. These assets encompass a wide range of digital content and properties. This includes cryptocurrencies like Bitcoin and Ethereum, digital tokens, digital certificates, digital collectibles, digital media files (music, videos, and ebooks), and even virtual real estate in online games and virtual worlds. One research report predicts virtual gaming worlds alone could be worth $400 billion by 2025, with the broader metaverse industry worth over $1 trillion.

What sets digital assets apart is their existence in distributed ledger technology. This involves a blockchain, which provides transparency and security. Digital assets can be bought, sold, traded, or transferred digitally, and they have gained popularity as a form of investment, a means of conducting transactions, and a new way to represent ownership and value in the digital age. Let’s dive deeper into the pros and cons of digital assets.

Pros of Holding Digital Assets in a 401(k)

There can be advantages to having digital assets in a 401(k) account. Notably, Bitcoin has seen remarkable growth of 150% over the last decade, surpassing the returns typically seen with traditional 401(k) investments like mutual funds. Here’s a look at some of the advantages of having digital assets in your 401(k):

  1. Diversification: Including digital assets in your 401(k) can help diversify your investment portfolio. Cryptocurrencies and other digital assets have shown a relatively low correlation with traditional assets like stocks and bonds. This can help reduce the overall risk in your retirement portfolio.
  2. Growth Potential: Digital assets have the potential for substantial growth over the long term. Bitcoin, for example, has experienced significant price appreciation since its inception. Including such assets in your retirement account may help you benefit from this growth potential.
  3. Tax Advantages: Storing digital assets in a 401(k) allows you to delay taxes on gains until retirement withdrawals. This is a long-term advantage, especially for appreciating investments. If you’re already trading cryptocurrencies and have a secure retirement plan independent of crypto, utilizing a 401(k) for crypto trading can help reduce your tax liability. In particular, Roth 401(k) accounts offer tax advantages by exempting capital gains from crypto investments.
  4. Security: Some proponents argue that holding digital assets in a 401(k) may offer the potential for enhanced security and the opportunity for higher gains when compared to assets traditionally held in 401(k) accounts. However, it’s important to note that even well-established cryptocurrencies can be highly volatile, and the level of security can vary based on individual investment choices.

Cons of Holding Digital Assets in a 401(k)

One of the main disadvantages of holding digital assets in a 401k is the instability it offers investors. Digital assets such as cryptocurrency are unstable in several ways:

  1. Price Volatility: Digital assets are known for their price volatility. While this volatility can present investment opportunities, it can also lead to significant losses. Investors should be prepared for the rollercoaster of holding cryptocurrencies in their retirement accounts.
  2. Lack of Regulation: Since digital assets are still relatively new, they operate in an environment with limited regulatory oversight. This lack of clear long-term regulations can contribute to uncertainty surrounding the future of these assets, including their price trajectory and viability as a recognized asset class. It’s important to stay informed about any regulatory changes that may affect your investments.
  3. Limited Investment Choices: Not all 401(k) plans provide the flexibility to invest in digital assets. Therefore, your investment choices may be constrained by the plan offered by your employer, potentially limiting your investment diversification. It’s essential to check with your plan administrator to determine whether digital assets are available as an investment option within your specific 401(k) plan.
  4. Technical Know-How: Investing in digital assets can be challenging for individuals without a strong understanding of blockchain technology and the complexities of the digital asset market. If you lack familiarity with these concepts, making informed investment decisions may be daunting. Working alongside a skilled financial advisor can help you navigate this dynamic terrain confidently.

Finding Balance With a Financial Advisor

Working with a retirement income planner, especially a fiduciary advisor, can be helpful if you find it challenging to strike the ideal balance in managing your digital assets within your 401(k).

At Agemy Financial Strategies, one of the key advantages of working with our fiduciaries is our legal obligation to prioritize your best interests, offering impartial guidance to empower you in making well-informed choices. Here’s how we can help:

  • Risk Assessment: Our financial advisors can help you assess your risk tolerance and risk assessment, providing valuable insights to determine whether digital assets are a suitable addition to your 401k. We’ll work with you to comprehend the potential risks and rewards of your investment choices.
  • Asset Allocation: Our advisors will help you establish the ideal allocation of digital assets within your comprehensive retirement portfolio. Proper asset allocation can help you achieve a well-balanced approach that aligns perfectly with your financial goals.
  • Tax Implications: The taxation of cryptocurrencies can be intricate, and tax laws can vary across jurisdictions. Agemy Financial Strategies will be your guide, helping you navigate the complex tax implications of buying, holding, and selling digital assets within the context of your retirement plan.
  • Long-Term Strategy: Crafting a robust, long-term retirement strategy is essential. Our dedicated fiduciary advisors will work closely with you to set realistic goals, conduct periodic plan reviews, and make necessary adjustments to secure your financial well-being throughout your retirement journey.

Final Thoughts

Holding digital assets in a 401(k) can be a strategic move for some investors, offering diversification and growth potential. However, it’s essential to consider the risks and consult a financial advisor to make informed decisions that align with your financial goals.

At Agemy Financial Strategies, we are dedicated to helping clients navigate the intricacies of planning for retirement to help ensure you never outlive your savings. Our fiduciary advisors can be a valuable resource in helping you navigate the digital asset landscape, assess the risks, and help you integrate these assets into your retirement strategy to align with your financial goals and risk tolerance.

If you’re ready to explore the world of digital asset investing, contact us today to set up your complimentary consultation here.

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5 Retirement Strategies for High-Net-Worth Individuals

When it comes to retirement planning, high net-worth individuals (HNWIs) aren’t just dabbling in financial foresight – they’re orchestrating a symphony of wealth, securing legacies, and creating financial strongholds for generations to come. 

What exactly defines a high net-worth individual? A HNWI is loosely described as someone with at least $1 million in liquid assets. And it’s no surprise that the United States boasts the highest number of HNWIs in the world.

If you are a HNWI, an aspiring HNWI, or even an Ultra High-Net-Worth Individual (UHNWI), let’s explore five essential retirement strategies to help you achieve your retirement goals with confidence and peace of mind. Let’s dive in!

1. Diversification and Long-Term Investing

Diversification is a fundamental strategy for any investor, but it holds even greater importance for HNWIs. Instead of putting all their eggs in one basket, diversifying their investment portfolio across various asset classes can help spread risk and potentially enhance returns. High net-worth investors should consider a mix of stocks, bonds, real estate, and alternative investments.

While the allure of chasing short-term gains may be compelling, the key to financial success for high-net-worth individuals lies in adopting a well-structured, long-term investment plan. This doesn’t entail suddenly shifting from 100% invested to 100% cash to time the market. Rather, it involves periodic rebalancing and reducing investments to maintain alignment with an acceptable risk level.

By consistently contributing to retirement accounts and adhering to a disciplined asset allocation strategy, HNWIs can lay the foundation for substantial wealth accumulation over time.

2. Tax Management

For high-net-worth investors, having a tax-savvy financial advisor by their side is not just a financial luxury – it’s a necessity. With their help, they can pave the way for tax preparation and the development of strategies that allow investors to harness the full potential of the tax code to their advantage. HNWIs often find themselves grappling with intricate tax scenarios, taking a hit of capital gains taxes, estate taxes, and income taxes.

Investments that are tax-efficient should be made in taxable accounts. Investments that aren’t tax-efficient are better off in tax-deferred or tax-exempt accounts. For example, suppose an investor in a high-income tax bracket wants to invest in an asset that produces high ordinary-income returns. In that case, they can use funds in an IRA or other tax-sheltered account, which might be better than defaulting to using after-tax money.

In the pursuit of minimizing tax liabilities, investors should explore an array of tax-efficient strategies, including:

  • Tax-Advantaged Accounts: Maximizing contributions to tax-advantaged retirement accounts such as 401(k)s and IRAs can significantly reduce tax burdens.
  • Tax-Loss Harvesting: The art of offsetting capital gains with capital losses is an effective tactic to curtail taxable income.
  • Charitable Giving: An avenue that allows investors to support their cherished causes and reap potential tax deductions simultaneously.
  • Trusts and Estate Planning: Establishing trusts and crafting an estate plan can help minimize estate taxes and help transfer wealth to heirs.

In navigating the intricate landscape of tax management, HNWIs can harness the power of these strategies to protect their wealth and make it work more efficiently for them.

3. Insurance and Risk Management

High-net-worth individuals need to recognize the need to shield their wealth from unexpected risks and potential liabilities. Robust insurance coverage emerges as the cornerstone of fortifying their financial security. As the saying goes, “There’s no wealth like your health,” this adage becomes increasingly pertinent as you age. Without the correct long-term care insurance, you could be facing monumental daily outgoings that even HNWI should be concerned about.

Type of care Average cost without insurance
Semi-private room in a nursing home $6,844 per month
Private room in a nursing home $7,698 per month
Assisted living facility, one bedroom $3,628 per month
Health aide $20.50 an hour
Homemaker services $20 an hour
Adult day care center $68 per day
Source: Administration for Community Living.

Without adequate insurance, these mounting costs can exert undue pressure on your investment portfolio withdrawals, potentially jeopardizing your financial stability.

As you diligently protect and nurture your wealth, protecting your health and comprehensive insurance coverage are equally indispensable for securing a prosperous and worry-free retirement.

4. Estate Planning

Estate planning is a solid guide on how you wish your assets to be distributed after passing. Whether your goal is to establish a lasting legacy or secure the financial well-being of your loved ones, taking part in estate planning early on helps to ensure that your intentions are documented and legally binding.

According to a recent UBS Investor Watch Survey, 83% of investors express concerns about the smooth transfer of their assets. It’s a common misconception that estate planning is a one-and-done thing, but it is hardly a one-and-done endeavor. Preparing the right legal documents today helps ensure that your intentions are crystal clear and that the fate of your assets doesn’t fall into a court’s discretion.

Laws evolve, tax codes undergo revisions, and the financial landscape shifts. Regularly reviewing and fine-tuning your estate plans is imperative to remain aligned with your current objectives in the ever-changing environment. After all, estate planning isn’t just about preserving your wealth; it’s about securing your legacy and helping your loved ones be taken care of according to your wishes.

5. Working with a Fiduciary Advisor

Collaborating with a fiduciary financial advisor can be a highly useful tool for HNWIs. Fiduciary advisors are legally obligated to act in their client’s best interests, providing objective advice. At Agemy Financial Strategies, we are dedicated to helping clients navigate the intricacies of planning for retirement to help ensure you never outlive your wealth while creating a legacy to last for future generations.

Here’s a glimpse into how we can make a meaningful difference in your financial journey:

  • Goal Setting: We will help you establish clear and attainable retirement goals, crafting a personalized financial blueprint to realize your retirement lifestyle aspirations.
  • Risk Assessment: Identifying potential financial risks is the cornerstone of our approach. We’ll work with you to develop sound strategies that not only identify these risks but also mitigate them effectively.
  • Portfolio Management: Our experience extends to implementing and managing a diversified investment portfolio meticulously aligned with your long-term objectives and risk tolerance.
  • Regular Reviews: Financial landscapes are ever-changing. That’s why we’re committed to consistently monitoring and fine-tuning your financial plan to ensure it remains in harmony with your evolving circumstances.

Final Thoughts

At Agemy Financial Strategies, you can rest assured knowing that your financial affairs are in capable hands. Our purpose is to educate retirees – whether that be planning for retirement, legacy planning, wealth management, or just holding your hand when it’s time to leap into retirement. Celebrating over 30 years in business, our question to you is, “Where do you want your financial roadmap to take you?”

Our first priority is helping you take care of yourself and your family. We want to learn more about your personal situation, identify your dreams and goals, and provide you with the highest level of service. If you want to learn more about how we can help you manage your wealth, schedule a complimentary strategy session with us here today.

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What You Need To Know About RMDs In 2024

The SECURE Act 2.0, enacted in late 2022, changed over 90 rules about IRAs and other qualified retirement plans, including RMDs. Here’s what you need to know about upcoming changes in 2024.

A Required Minimum Distribution (RMD) represents the mandatory amount that must be withdrawn from various retirement accounts, including employer-sponsored retirement plans, traditional IRAs, SEPs, or SIMPLE IRAs, by their owners and qualified retirement plan participants once they reach retirement age.

Each account has its RMD calculation, and the distribution must be taken from the respective account unless specific exceptions apply. There’s still time to take your RMD from your retirement accounts (excluding Roth IRAs) before the year’s end—but time is of the essence. Here’s what you need to know for 2024.

Understanding SECURE Act 2.0 Changes

The SECURE 2.0 Act, officially named the Securing a Strong Retirement Act of 2022, ushered in a wave of modifications to the regulations governing when and how individuals must withdraw funds from their retirement accounts to avoid incurring additional taxes and penalties. These alterations were crafted to simplify the retirement landscape for individuals by extending deadlines, eliminating certain requirements, and reducing penalties for errors.

Some of these changes have already taken effect, while others are slated to roll out in the coming years, with the final adjustments set to be fully implemented by 2033. The primary modifications to the Required Minimum Distributions (RMDs) encompass adjustments to the RMD age, exemption of RMDs for Roth accounts, the removal of RMD obstacles for life annuities, and a reduction in excise tax penalties for RMD errors, along with the introduction of a 3-year statute of limitations. Let’s delve into these details and understand what they mean for 2024.

When Do I Need to Take My RMD?

RMDs are mandatory withdrawals from certain tax-advantaged retirement accounts. The first time you take an RMD, you’ll have until April 1 of the year following the year you turn 72 (or age 73 if you turn 72 in 2023 or later) to do so. The IRS sets this age threshold to confirm that retirees begin drawing down their retirement savings and paying taxes on the deferred income.

The deadline for taking your RMD each year is December 31st. Failing to withdraw the required amount by this date can result in steep penalties—a 25% excise tax on the amount you should have withdrawn. If the RMD is missed, you must fill out IRS Form 5329. See Part IX of this form for the section regarding the additional tax on excess contributions.

Which Accounts Require Distributions?

RMDs are primarily associated with traditional Individual Retirement Accounts (IRAs) and employer-sponsored retirement plans such as 401(k)s and 403(b)s. Roth IRAs do not require RMDs during the account owner’s lifetime; they are funded with after-tax dollars. However, beneficiaries of Roth IRAs may have RMD obligations.

You must calculate the RMD for each account separately if you own multiple traditional IRAs. However, you can aggregate the total RMD amount and withdraw it from one or more of your IRAs. This flexibility allows you to choose which account(s) to withdraw from as long as you satisfy the total RMD requirement.

You can use the IRS’s Uniform Lifetime Table to determine the amount you need to withdraw. The RMD amount is calculated based on your account balance and life expectancy to deplete the account over your expected lifetime. If you haven’t yet done so, estimate your personal RMD withdrawals with our free online RMD Calculator here.

What Is The 3-Year Statute Of Limitations?

A statute of limitations is a time frame within which the IRS can take legal action or collect unpaid taxes. It’s a legal restriction that dictates how far back the IRS can reach when assessing penalties, pursuing criminal charges, or initiating other actions related to tax matters. Tax issues have different statutes of limitations, each with specific rules and considerations.

Previously, Form 5329 left the statute of limitations open-ended, allowing penalties and interest to accumulate without a defined limit. Fortunately, Congress addressed this issue, but it’s important to note that there are still some exceptions that retirees should be aware of.

  1. Extended Statute for Excess IRA Contributions: The SECURE 2.0 Act extends the statute of limitations to 6 years for the 6% excess IRA contribution penalty. However, this relief is unavailable if an IRA has acquired property below its fair market value, and the statute of limitations remains indefinite if Form 5329 isn’t filed.
  2. Expansion of IRS Self-Correction Program: SECURE 2.0 broadens the IRS self-correction program, known as the Employee Plans Compliance Resolution System (EPCRS), to include individual retirement account errors, including a waiver for failure to take RMDs. Note that self-correction for IRAs under EPCRS may be available for only a few years, as SECURE 2.0 grants the IRS that timeframe to guide this matter.
  3. Elimination of RMDs for Roth 401(k)s: SECURE 2.0 brings welcome relief by eliminating required minimum distributions (RMDs) for Roth 401(k)s and other employer Roth plans. While Roth IRAs were never subject to lifetime RMDs, Roth 401(k)s were. Starting in 2024, individuals will not need to roll over Roth 401(k) funds to a Roth IRA to avoid RMDs, as these funds will be exempt from RMDs.

Working With a Fiduciary Advisor

Understanding how recent changes impact your IRA is crucial in the ever-evolving landscape of retirement laws. Among the essential topics for IRA owners to grasp is the concept of RMDs. Working with a trusted fiduciary advisor can be a game-changer in effectively managing – and understanding – your RMDs. They can help you fulfill your legal obligations and provide personalized guidance to optimize your financial situation within the bounds of IRS regulations.

You don’t have to tackle the complexities of required minimum distributions alone. At Agemy Financial Strategies, we are here to offer in-depth insights into your specific RMD responsibilities and explore tax-efficient strategies for RMD management. We work with you to assess your retirement income needs and craft a tailored plan aligned with your unique financial goals. Please refer to our service offerings page for a comprehensive list of our services.

Final Thoughts

By staying informed about when RMDs apply, how they’re calculated, and your options for managing them, you can confidently navigate this aspect of retirement planning with confidence. If you’re ready to take the first step to achieving your retirement goals, our team is here to assist you. The better you comprehend your financial strategy, the more effectively you can manage your finances for generations to come!

Set up your complimentary retirement strategy session today. We look forward to helping you on your road to retirement and beyond.

 

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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New Changes to Retirement Accounts in 2025: What You Need to Know

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Significant changes to IRAs and 401(k)s in 2025 bring new opportunities to save for retirement, but staying informed is essential to making the most of them. 

These updates, driven by the SECURE 2.0 Act and other recent legislative measures, are designed to boost savings potential and streamline retirement planning for millions of Americans. Here’s an in-depth look at the major changes to retirement accounts in 2025, how they may affect your financial strategy, and what steps you can take to help optimize your retirement plan.

1. Increased Catch-Up Contribution Limits 

If you’re 50 or older, you’re likely familiar with catch-up contributions—additional amounts you can contribute to your retirement accounts to accelerate your savings. For 2025, these limits will increase significantly for eligible savers:

401(k) Plans:

  • The total contribution limit for taxpayers 50 and older will be $31,000, which includes a $23,500 base contribution limit and a $7,500 catch-up contribution—unchanged from 2024.
  • For those aged 60 to 63, catch-up contributions will rise to $11,250, up from $7,500 in 2024. This means that, including the increased catch-up allowance, total contributions for this group can reach $34,750, including the increased catch-up allowance.
  • These changes reflect a new rule allowing individuals aged 60 to 63 to contribute over $10,000 or 150% of the 2024 catch-up limit, adjusted for inflation.

IRAs:

  • Similarly, the IRA catch-up contribution limit, currently $1,000, will be indexed to inflation. This adjustment helps ensure the contribution amount keeps pace with rising costs.

The increased contribution limits for 401(k)s and IRAs allow individuals to save more money for retirement. This is especially beneficial for those nearing retirement age who may have a shorter timeline to accumulate wealth.

2. SIMPLE IRAs & Catch-Up Contributions 

For 2025, the base contribution limit increases slightly to $16,500, while the catch-up limit for those aged 50 and older remains unchanged at $3,500. However, a significant enhancement is coming for participants aged 60 to 63. This group’s catch-up contribution limit will increase to $5,000 or 150% of the standard age 50 catch-up contribution limit, adjusted for inflation.

In 2025, Individuals in this age range can contribute $5,250 more to their SIMPLE IRAs, providing a valuable opportunity to accelerate their retirement savings. For 2026, these limits will be adjusted annually for inflation, helping ensure contributions keep pace with rising costs.

These changes make SIMPLE IRAs a more powerful tool for retirement planning, particularly for those nearing retirement. Working alongside a trusted fiduciary advisor can help you navigate the complexities of Roth catch-up contributions and conversions.

3. Automatic Enrollment & Escalation in Employer Plans

To encourage more Americans to participate in workplace retirement plans, automatic enrollment and escalation features will become mandatory for most new 401(k) and 403(b) plans. Here’s how it works:

  • Automatic Enrollment: Employees are automatically enrolled in their company’s retirement plan. However, automatic enrollment does not mean mandatory participation. Employees can change the rate or opt out by electing a zero percent (0%) contribution rate.
  • Automatic Escalation: The initial escalation contribution amount must be at least 3% but no more than 10%. Each year thereafter, that amount is increased by 1 percent until it reaches at least 10%, but no more than 15%.

These features aim to help make retirement saving easier and more consistent, particularly for younger employees who may otherwise delay starting their retirement journey.

4. New 10-Year Rule For Inherited IRAs 

If you inherited an IRA from someone who passed away on or after January 1, 2020, the IRS now requires you to withdraw all funds from the account by December 31st of the tenth full calendar year after the original account holder’s death. This rule replaces the traditional “stretch IRA” strategy, which previously allowed beneficiaries to extend withdrawals—and tax-deferred growth—over their lifetimes.

While the 10-year withdrawal rule applies to most beneficiaries, certain individuals can still utilize the stretch IRA provisions. These include:

  • Surviving spouses.
  • Children under the age of 21 (withdrawals must begin once they reach 21).
  • Beneficiaries no more than 10 years younger than the decedent.
  • Individuals who are disabled or chronically ill.

For these exceptions, beneficiaries may withdraw funds over their lifetimes, starting the year after the decedent’s death. Surviving spouses also have the option to roll the inherited IRA into their own IRA, deferring required withdrawals until they reach their own “required beginning date” (RBD).

5. Inherited IRA RMD Penalties

The IRS has delayed implementing the final rules for required minimum distributions (RMDs) from inherited IRAs until 2025. During this transitional period, beneficiaries who did not take RMDs from their inherited IRAs between 2021 and 2024 have been granted relief from penalties.

However, starting in 2025, a 25% penalty will apply to those who fail to take their required RMD. Staying informed and proactive is essential to avoid penalties and help ensure compliance with the updated rules. Working with a fiduciary can help you navigate new RMD laws and help ensure you’re on the right track to avoid penalties.

6. New Retirement Savings “Lost and Found”

With Americans holding many jobs over their lifetime, it’s not uncommon to lose track of retirement accounts from former employers. Currently, 29.2 million forgotten 401(k) accounts hold an estimated $1.65 trillion in assets.

To address this, the SECURE 2.0 Act established the Retirement Savings Lost and Found database, managed by the Department of Labor. This tool helps individuals locate lost retirement accounts using data submitted by plan administrators and uploaded by the Employee Benefits Security Administration (EBSA). To use the database, you’ll need a Login.gov account. Setup requires:

  • Legal name
  • Date of birth
  • Social Security number
  • A mobile device
  • Driver’s license photos (front and back)

How an Advisor Can Help Optimize Your Retirement Plan

At Agemy Financial Strategies, our fiduciary advisors are dedicated to providing guidance that aligns with your best interests. Taking a holistic approach, we carefully analyze every aspect of your financial situation to help you achieve your envisioned retirement. Here’s how we can support you:

  1. Maximize Contributions: We’ll help you take full advantage of the increased contribution limits for 2025 and guide you in prioritizing the maximum catch-up amount to your 401(k), helping ensure you make the most of this critical savings opportunity.
  2. Evaluate Roth Options: If you’re a high earner, we can help you assess how Roth catch-up contributions fit into your tax strategy. Our advisors will evaluate the benefits of paying taxes now for tax-free withdrawals later, helping you make informed decisions.
  3. Reassess Retirement Goals: With automatic escalation features becoming more common, our team will work with you to regularly review your contribution percentages. This will help your savings strategy align with your goals and financial situation.
  4. Plan for Inflation: We’ll help you factor inflation adjustments into your long-term savings plan. Staying proactive can help preserve your purchasing power and maintain financial stability throughout retirement.

Final Thoughts

Understanding the changes to retirement accounts in 2025 is critical for making informed decisions about your financial future. These updates present new opportunities to save, invest, and grow your wealth but also require thoughtful planning. At Agemy Financial Strategies, we’re here to help you confidently navigate these changes and create a strategy tailored to your unique financial goals.

Contact us today to learn how we can help you secure a prosperous retirement.

Frequently Asked Questions (FAQs)

1. How do I know if I’m eligible for increased catch-up contributions?

To qualify for the higher catch-up contributions, participants must meet specific criteria: they must be aged 60 to 63 in December of that calendar year. These Individuals can utilize the enhanced catch-up contribution limits. Verifying your eligibility with your retirement plan provider is important, as different providers may have different rules.

2. What happens if I don’t want to participate in automatic enrollment?

Employees can opt out of automatic enrollment or adjust their contribution rate anytime.

3. Are Roth contributions better than traditional pre-tax contributions?

This depends on your current income, tax bracket, and retirement goals. Roth contributions can be advantageous if you anticipate being in a higher tax bracket in retirement.

4. How does inflation affect IRA contribution limits?

For 2025, IRA catch-up contributions will be indexed to inflation, helping savers to contribute more as the cost of living rises.

5. Can part-time workers participate in any retirement plan?

Eligibility varies by employer. However, the SECURE 2.0 Act helps ensure that part-time employees who work at least 500 hours per year for two consecutive years participate in their company’s 401(k) plan. This expands access to retirement savings for long-term part-time workers, even if eligibility may differ based on individual company policies.

Disclaimer: This blog is for informational purposes only and should not be considered financial, legal, or tax advice. Always consult the qualified fiduciary advisors at Agemy Financial Strategies to help determine how these changes apply to your circumstances.

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ChatGPT vs. Financial Advisors

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In a world where technology is rapidly advancing, many are turning to AI for questions ranging from health concerns to intricate coding. But is this a sustainable long-term solution when planning for retirement? Let’s find out!

There’s no doubt that technology has become an integral part of our lives, including how we manage our money. With AI-powered chatbots like ChatGPT and Google Bard now available, people can easily find answers to their pressing questions. But is it advice we can trust when it comes to our financial future?

To help decide, we will explore the advantages and disadvantages of ChatGPT compared to a human financial advisor. Here’s what you need to know.

What Is ChatGPT?

ChatGPT is a part of the new generation of AI language models created by OpenAI. It harnesses the power of machine learning to comprehend and generate text that closely resembles human language. The more intricate the questions, the more detailed the response. 

AI language models like ChatGPT have made significant contributions to various industries. For instance, businesses in customer service utilize ChatGPT to automate responses to common questions. It has also been instrumental in the education sector, assisting educators in creating intelligent tutoring systems that offer personalized support to help students.

Yet, as we embrace the many benefits of AI, it’s equally important to acknowledge its potential downsides, especially when it comes to sensitive monetary issues like investing.

Let’s take a look at how ChatGPT can help in the retirement planning process.

Advantages of Using ChatGPT

In retirement planning, making informed decisions is crucial to secure a financially stable future. Impressive data analysis capabilities, efficiency, accessibility, and affordability have positioned AI tools as an attractive alternative to financial advisors for retirement planning advice. Here are some of the advantages of using ChatGPT for retirement planning:

  • Accessibility: ChatGPT is available 24/7, making it convenient for users to seek financial guidance whenever needed. Real financial advisors, on the other hand, may have limited availability and often require appointments.
  • Speed: ChatGPT provides instant responses, which can be especially valuable for quick inquiries or urgent financial decisions.
  • Cost-Effective: Most AI chatbots, including ChatGPT, are typically free. (However, the newest version, GPT 4, costs $20/month.)
  • Privacy: Some individuals may feel more comfortable discussing sensitive financial matters with an AI chatbot, as they don’t have to worry about their information being shared or judged.

Limitations of ChatGPT

While ChatGPT undoubtedly offers numerous advantages in retirement planning, it’s equally important to recognize and understand its limitations. Let’s delve into some of these major constraints:

  • Lack of Personalization: ChatGPT provides general information and cannot tailor advice to an individual’s unique financial situation, goals, and risk tolerance – all of which are needed to provide accurate and customized advice. 
  • Zero Emotional Intelligence: AI chatbots lack emotional intelligence and cannot provide the empathy and emotional support that a human advisor can offer during challenging financial situations.
  • Complex Financial Planning: Real financial advisors bring ample experience that AI chatbots cannot replicate for complex financial planning, such as investing, retirement planning, or estate planning.
  • Accountability: In the event of incorrect advice or financial losses, AI chatbots like ChatGPT do not have accountability. In contrast, real financial advisors are regulated and can be held responsible for their advice.

The Human Touch

While the capabilities of modern AI technology are impressive, it is important to recognize that AI systems would have to overcome significant trust hurdles before they would be in any position to replace human advisors. 

In reality, human advisors possess the capacity to have significant conversations, attend to personal circumstances, respond to inquiries, and provide reassurance in a manner that artificial intelligence cannot imitate. This personalized approach and their ability to adjust guidance to match changing life circumstances render human financial advisors indispensable when delivering genuinely thorough financial advice to their clients.

Working With a Real Financial Advisor

Both ChatGPT and human financial advisors have their strengths regarding retirement planning advice. ChatGPT is great at math and can help with number-related tasks (though it’s a good idea to double-check its calculations), but when creating a customized financial plan to help you reach your long-term goals, a real financial advisor is the clear winner.

Financial advisors, particularly Fiduciary advisors, offer a personalized approach to retirement planning. A Fiduciary is an advisor who is legally and ethically bound to act in the interests of their clients. To recap, here’s why you should opt for a real financial professional regarding your retirement planning:

Human Guidance:

Real-life Fiduciary advisors offer personalized financial advice tailored to your specific goals, risk tolerance, and financial situation. They can understand your unique circumstances and provide human empathy and understanding in complex financial decisions.

Human Support:

Fiduciary advisors can provide emotional support during market volatility or life events, helping you stay committed to your long-term financial plan. They can offer reassurance and guidance when emotions might lead to impulsive decisions.

Multifaceted Financial Resolutions:

Human advisors excel in handling intricate financial scenarios, such as estate planning, tax optimization, and retirement income strategies. They can adapt strategies to changing regulations and market conditions, helping to ensure your financial plan remains relevant.

Fiduciary Duty:

Fiduciary advisors are legally obligated to act in your best interests, minimizing conflicts of interest. They offer transparency and accountability in their actions, helping you trust the advice you receive.

While AI can provide valuable financial insights and automate certain tasks, real-life fiduciary advisors offer a holistic and personalized approach to financial planning and support.

Final Thoughts

Planning for retirement is a significant financial milestone, and making informed decisions for a secure financial future is essential. As observed, ChatGPT provides universal information and insights for retirement planning based on the given parameters: It may help generate retirement savings goals and generic investment options; however, it cannot account for personal circumstances, goals, risk tolerance, and specific family dynamics as a human advisor can.

It’s always important to regularly meet with your financial advisor to get the facts from the source. Be sure to update them on your financial situation, including your expected retirement date, income needs, and any other family situations that may affect your financial plan.

Are you looking for the human touch in your retirement income plan? At Agemy Financial Strategies, our team of Fiduciary advisors is well-versed in comprehensive retirement planning services to help you reap a steady income stream throughout your golden years. We are dedicated to helping clients navigate the intricacies of planning for retirement to help ensure you never outlive your savings.

If you’re ready to begin your retirement planning journey, contact us today to set up your complimentary consultation.

 

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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Is a Self-Directed IRA Right For You?

IRAs are a great way to invest for your retirement years. But if you want to invest in assets like precious metals, real estate and crypto, certain assets are off-limits. That’s where opening a self-directed IRA comes into play. 

If you’re approaching retirement, you’re likely exploring avenues to fine-tune your financial strategy. One option worth considering is the Self-Directed Individual Retirement Account (SDIRA). While traditional IRAs and 401(k)s certainly have their benefits, SDIRAs present distinct advantages for retirees with substantial wealth.

In this blog post, we will delve into the world of SDIRAs, examining their benefits, potential drawbacks, and whether they align with your needs in retirement. Here’s what you need to know.

What is a Self-Directed IRA?

A Self-Directed Individual Retirement Account (SDIRA) is a retirement savings account that gives you greater control over your investments than traditional IRAs. The main difference between an SDIRA and other IRAs is the types of investments allowed. Regular IRAs limit you to common investments like stocks, bonds, CDs, and mutual funds.

As of 2023, there has been an 11.1% uptick in the number of Americans choosing to open IRA accounts. This surge is reflected in the table below, which shows a total of 13.1 million IRA accounts currently active.

Fiduciary advisor near me

However, SDIRAs open the door to a wider range of assets. With an SDIRA, you can invest in precious metals, commodities, private placements, real estate, and other unique options. This means that managing an SDIRA requires more effort and careful research from the account owner.

Understanding Taxes, Withdrawals and Contributions

Contributions to a self-directed IRA are limited to yearly amounts. In 2023, this amount is $6,500 for individuals under 50, and if you’re over 50, you can add an extra $1,000 as a catch-up contribution.

When you decide to start taking money out, you’ll have to pay regular income taxes unless you’re 59½ or older. If you withdraw any funds before hitting this age, there’s a 10% penalty, and you’ll still owe income tax on what you take out.

Once you reach 73, the IRS says you must begin withdrawing money. The amount you need to withdraw depends on your account balance and life expectancy, following their minimum requirements.

Benefits of Self-Directed IRAs for High Net Worth Retirees

It is common for most high-net-worth retirees to invest a notable portion of their wealth in traditional avenues. Self-Directed IRAs (SDIRAs) present a valuable opportunity to grow your investment portfolio. Here’s a look at some of the benefits SDIRAs can offer:

  • Diversification Opportunity: SDIRAs allow high-net-worth retirees to diversify their investment portfolios beyond traditional stocks and bonds, reducing overall risk exposure.
  • Tax Advantages: Contributions to a traditional SDIRA are usually tax-deductible, and investments grow tax-deferred until retirement withdrawals, benefiting high-net-worth individuals in higher tax brackets.
  • Personalized Investment Options: SDIRAs empower investors to make decisions based on their expertise and preferences, potentially leading to higher returns.

Now that we know about the benefits let’s look at some drawbacks.

Potential Drawbacks of Self-Directed IRAs

Managing SDIRAs can be more intricate than traditional retirement accounts, requiring a deeper understanding of investment options and compliance with IRS regulations. While SDIRAs offer many advantages, it’s important to be aware of their potential drawbacks:

  • Complexity: Managing a self-directed retirement account can be more complex than a traditional IRA. You must adhere to IRS rules and regulations, and certain investments may require additional paperwork and compliance measures.
  • Risk: With greater investment control comes greater responsibility. High net-worth retirees must carefully research and select investments, which can be riskier if not done wisely.
  • Fees: SDIRAs may have higher administrative fees than traditional IRAs, given the need for additional services like custodians or facilitators for certain asset types.

Working with a financial advisor can help you understand the advantages and drawbacks of SDIRAs. They can assist you in making informed decisions about your retirement savings strategy.

Is a Self-Directed IRA Right for You?

Determining whether a Self-Directed Individual Retirement Account (SDIRA) is the right choice for you involves considering various crucial factors. Firstly, your level of investment experience plays a pivotal role; if you possess knowledge in alternative investments like real estate or private equity, an SDIRA may align well with your expertise and interests.

Secondly, assessing your risk tolerance is vital, as self-directed investments carry potential risks that require careful management and due diligence. Lastly, consulting with a financial advisor to understand the tax implications of incorporating an SDIRA into your financial strategy is essential. They can help you learn about the potential tax benefits and associated consequences.

Working With a Financial Advisor

Navigating the complexities of retirement planning, especially with Self-Directed IRAs, can be challenging. Working with an experienced financial advisor becomes crucial to help you navigate this financial realm.

A financial advisor can help you review your investments while accounting for risk management tactics to help ensure they remain in sync with your financial situation. At Agemy Financial Strategies, our team of financial advisors is here to walk you through the process of achieving renewable wealth so that your money can work hard for you and you can reap the benefits of a comfortable retirement. Here are just some of the many ways we can help our clients:

By regularly reviewing and adjusting your plan, you can make informed decisions to help maximize your retirement savings and help ensure financial security for you and your loved ones.

Last Thoughts

Self-Directed IRAs offer a unique way to plan for retirement, especially for those nearing retirement. However, they require careful thought and more active management of your investments.

To see if an SDIRA fits your retirement goals and financial situation, it’s crucial to talk to a financial advisor. Making the right choice can set you up for a successful retirement that helps your finances for years to come.

Start your journey to financial success by scheduling your complimentary strategy session today.

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Investing in Real Estate During Retirement

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Do you REALLY need Real Estate in your investment portfolio? If you do, what percentage of your portfolio should it cover? Let’s find out. 

Navigating investments at any stage in life can be complex, but the stakes become even higher as retirement approaches. During retirement, the main goal is to minimize risk, generate income, and protect your assets from inflation. So, is real estate a good option for retirement?

The answer is not a one-size-fits-all solution. It depends on various factors unique to your situation. In this blog, we will explore real estate investments for retirees and how you can make informed decisions that align with your goals and needs. Here’s what you should know.

What are Real Estate Investments? 

While many people own the home they live in, generally, that’s not considered a real estate investment. Adding real estate to your portfolio can add diversity and growth to your portfolio without adding significant risk (though, like with all investments, risk is always a factor to consider).

Real estate investments are either active or passive. Active ones, like house flipping or managing rentals, demand your time, effort, and often more money. They can earn more but come with higher risks. Passive ones, like investing in REITs or real estate funds, don’t need you to manage properties and are less hands-on with a smaller initial investment.

The Benefits of Real Estate Investments

Real estate has been a popular form of investment for decades. Whether buying, owning, or managing real estate properties, you can generate income, capital appreciation, or both. Unlike other investment options, real estate often provides a steady and predictable cash flow, making it an attractive choice for individuals searching for a stable income stream.

Even though mortgage rates nationwide have recently become more affordable, as of January 2023, home prices in the United States dropped for the seventh consecutive month. As a result, sellers are finding themselves in a situation where they are more willing to accommodate their buyers’ requests, which can lead to some excellent deals for buyers.

Looking back at historical trends, real estate has consistently demonstrated an inclination to increase in value over time. Although short-term fluctuations may occur, well-located properties tend to see their worth rise over the years, giving investors the opportunity for significant capital gains when they eventually decide to sell.

In addition to these benefits, real estate investments offer valuable tax advantages. These tax benefits can substantially reduce your overall tax liability, further enhancing the financial attractiveness of real estate investments. Now that we have explored the benefits of direct real estate investments, let’s dive into Real Estate Investment Trusts (REITs).

To sum up, the reasons why so many investors choose Real Estate in their portfolio include:

  • Steady cash flow. When you invest in places like homes or certain real estate groups, you get a regular paycheck from tenants.
  • Mixing it up. If you already have money in things like stocks or bonds, adding real estate is like adding a different flavor to your money mix. It doesn’t move in the same way as the others.
  • Tax perks. If you own a rental place, there are some cool tax benefits. For instance, the value drop of the house over time can reduce your tax bill. Some can even use losses from their property to lower their regular taxes.
  • It’s real and useful. Unlike some investments that are just numbers on a screen, real estate is a real thing. Even if its price goes down, someone can still live in it and pay rent.

Consider Real Estate Investment Trusts (REITs) for Your Portfolio

Real estate investment trusts (REITs) offer a unique way for investors to join forces and invest in properties collectively. Think of it as a mutual fund, but it focuses on real estate instead of stocks.

For seasoned investors, REITs can be a valuable addition to their portfolio. However, if you’re starting your investment journey, it’s prudent to concentrate on wealth accumulation before diving into REITs. While dependable REITs are in the market, others rely heavily on debt to acquire properties, elevating the investment risk.

Before venturing into REITs, it’s essential to consult with an investment professional, like a Fiduciary Advisor. They can help you evaluate potential risks and ascertain whether REITs align with your financial objectives and overall investment strategy.

Understanding Risks in Real Estate

While real estate investments offer numerous advantages, they have their fair share of risks and challenges. Here are some key considerations:

  • Market Volatility: The real estate market can be quite unpredictable, with property values susceptible to fluctuations influenced by economic conditions, interest rate changes, and other external factors.
  • Property Vulnerability: Properties can be vulnerable to various threats, including damage or devaluation caused by natural disasters or environmental factors. This risk becomes more pronounced as extreme weather patterns become increasingly common.
  • Financial Hurdles: Real estate investments often require a substantial amount of capital. Investors may encounter difficulties when seeking financing or to manage the debt associated with their investments.
  • Ongoing Management: Successful real estate investments demand ongoing management and maintenance. Investors might encounter challenges finding reliable tenants, efficiently overseeing their properties, and addressing unforeseen expenses.

By understanding these potential risks and preparing accordingly, investors can make more informed decisions and develop strategies to mitigate these challenges, ultimately optimizing the benefits of their real estate investments.

Real Estate in Connecticut

Connecticut boasts a unique blend of natural beauty, a rich history, and a proximity to major cities like New York City and Boston. These factors contribute to a real estate market that has proven to be a stable and potentially lucrative investment opportunity.

Here are some reasons why investing in Connecticut real estate during retirement makes sense:

  • Property Appreciation: Over the years, Connecticut has witnessed steady property appreciation. The number of listings increased by 116.1% in April 2023. From 1,759 in December 2022. This means that the value of your real estate investment is likely to increase over time, providing a source of potential capital appreciation.
  • Stable Rental Market: Connecticut has a strong rental market, making it an ideal place to invest in income-producing properties. Rental income can be a reliable source of passive income in retirement.
  • Diverse Investment Options: Connecticut offers a range of real estate investment opportunities, from residential properties to commercial real estate and vacation rentals. This diversity allows you to tailor your investments to your financial goals and risk tolerance.
  • Tax Benefits: Connecticut offers various tax incentives and deductions for real estate investors, making it more appealing for retirees looking to minimize their tax burden.

Real Estate in Colorado

With our sister office located in Denver, Colorado, we have the inside knowledge and advice if you are considering adding Colorado Real Estate into your portfolio.

  • Scenic Diversity: Colorado’s real estate market offers a stunning array of landscapes, from the bustling cityscapes of Denver to the serene beauty of the Rocky Mountains. Buyers can choose from urban, suburban, or rural settings, catering to various lifestyle preferences.
  • Strong Appreciation: Colorado has experienced consistent real estate appreciation over the years, making it an appealing option for investment. In April 2023, the median sale price dropped by 5.2% compared to the previous year, and there was a 26.6% decrease in the number of homes sold. However, there is a silver lining as new buyers enter the market, thanks to more stable mortgage rates, which currently stand at 6.79%.
  • Tax Benefits: Colorado offers property tax deductions for homeowners, helping to reduce the annual tax burden on real estate for seniors 65 or older who have lived in their homes for at least ten consecutive years. This exemption allows eligible seniors to exempt 50% of the first $200,000 of their property’s value from taxation.
  • Agricultural Land Deductions: If you are a landowner with agricultural property, you could be eligible for agricultural land deductions. These deductions could help reduce property tax assessments for qualifying agricultural properties. The deductions amount to 20% of the resulting lease payments, with a cap of up to $25,000 per year, and can be claimed for a maximum of three years.

The Role of a Fiduciary Advisor

Investing in real estate during retirement can pose complexities, especially for those managing significant portfolios. If you’re seeking a Connecticut-based or Colorado-based Fiduciary Advisor with extensive experience in real estate investments, Agemy Financial Strategies is here to help.

Fiduciary Advisors are legally obligated to prioritize your best interests, delivering impartial advice and recommendations aligned with your financial goals. Our seasoned professionals can help you identify opportunities and make well-informed decisions tailored to your unique needs and objectives.

Our advisors are adept at seamlessly integrating your real estate investments into your comprehensive retirement portfolio, helping to ensure it remains balanced and diversified. To explore our full service offerings, see here.

Final Thoughts

Investors should stay informed about changes in the real estate market and be prepared to adjust their investment strategy accordingly. Partnering with a Fiduciary advisor can help you mitigate risks and take advantage of upcoming opportunities. At Agemy Financial Strategies, you can rest assured knowing you are working with professionals who have your best interests at heart. Our Fiduciaries are here to help you make informed decisions and enjoy a financially secure retirement.

Ready to see if real estate investments are right for you? If you’re ready to start the conversation, contact us today to schedule your complimentary consultation.

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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RMDs: The 3-Year Statute of Limitations

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If you’re approaching retirement, you might be familiar with Required Minimum Distributions (RMDs). However, the rules surrounding RMDs are changing, and without proper planning, you could risk IRS-enforced collections. Here’s what you need to know. 

The SECURE 2.0 Act of 2022, enacted Dec. 29, includes almost 100 new retirement plan provisions, many of which aren’t effective yet. But some big changes involving required minimum distributions and related penalty relief are already in effect

Before we delve into the 3-year statute of limitations, let’s briefly recap what RMDs are and why they matter.

What are RMDs?

A required minimum distribution (RMD) is the amount of money that must be withdrawn from employer-sponsored retirement plans by owners and qualified retirement plan participants of retirement age.

In 2023, the age at which you must begin taking RMDs changed to 73 years. Account holders must, therefore, start withdrawing from a retirement account by April 1, following the year they reach age 73. The exact age may vary depending on your retirement plan and when you were born.

The IRS uses a specific formula to calculate your RMD, considering your account balance and factors related to life expectancy. In 2023, the RMD table is based on the IRS’s widely-used Uniform Lifetime Table. It’s worth noting that the IRS has additional tables for account holders and beneficiaries whose spouses are considerably younger.

SECURE 2.0 Shakes Things Up for RMDs

The Securing a Strong Retirement Act of 2022, known as SECURE 2.0 Act, made some changes to the rules about when and how people need to take out money from their retirement plans to avoid being hit with extra taxes.

These changes were designed to make things easier for retirees by giving them more time to file, removing certain requirements, and lowering penalties if they make a mistake. Some of these updates are already in place, and others will start in the coming years, with the last ones kicking in by 2033. The main changes to RMDs include:

1. Changes to the Participant’s RMD Age (Effective in 2023)

Under the SECURE Act of 2019, the RMD age for a terminated participant increased from 70½ to 72 effective in 2020. SECURE 2.0 again changes the RMD age to 73 in 2023, and ultimately to age 75. The chart below highlights the changes to the RMD age at relevant points in time.

Required Minimum Distributions (RMDs)

2. No RMDs Required from Roth Accounts (Effective in 2024)

For 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024. You can withdraw more than the minimum required amount.

3. Removing RMD Barriers to Life Annuities

The rules for Required Minimum Distributions are designed to prevent individuals from deferring taxes for too long, and one way they achieve this is by limiting annuity contracts from providing small initial payments that grow excessively over time. However, in practice, these rules can sometimes restrict even minor increases in benefits. But now, Congress is working to make annuity contracts in defined contribution plans more appealing.

Section 201 of the Act allows commercial annuities purchased under 401(k) and other defined contribution plans, as well as IRAs, to offer the following:

  1. Increases in payments of up to 5% per year.
  2. The option to receive certain lump sums that replace future distribution payments.
  3. The ability to accelerate up to 12 months’ worth of payments.
  4. Reasonable dividend payments.
  5. Death benefits that are equal to the cost of the annuity, reduced by previous payments.

4. Reduction in Excise Tax for RMD Errors

Despite regularly appearing on the list of priorities for tax-exempt and government entities’ compliance, it’s not unusual for people to make mistakes when it comes to Required Minimum Distributions (RMDs).

Up to now, one of the largest penalties in the Tax Code was the 50% penalty for not taking an RMD. It was based on the RMD amount that should have been taken but wasn’t.

SECURE 2.0 lowers this penalty to 25%, and then to 10% if the missed RMD is timely made up.

What is the Statue of Limitations?

The statute of limitations is the time limit for the IRS to file charges or collect back taxes. In general, a statute of limitations is a law (statute) that limits how far back you can go when assessing a penalty, charging someone with a crime, or taking other actions. There are different statutes of limitations for different types of tax issues.

RMDs and the 3-Year Statute of Limitations

There is now a three-year statute of limitations associated with the failure to take a required minimum distribution (RMD) from a retirement account. Overlooked when the SECURE Act 2.0 was enacted was Section 313 of the Act, which added a 3-year statute of limitation for the failure to take an RMD. If an RMD is missed, the 25% penalty is only applicable for the next three years. So what happens after those three years have passed?

The statutes of limitations not only limits the IRS in assessing additional tax on returns filed, but it also limits the amount of time you have to claim a refund or credit due. If the three-year deadline for filing has passed, the IRS, by law, cannot issue your refund.

IRS Form 5329 is a tax form used for reporting retirement plan penalties and requesting a waiver of the RMD penalty. As mentioned above, in the past, not filling out this form for penalty relief meant that the three-year statute of limitations wouldn’t start, resulting in a hefty 50% excise tax. However, thanks to the SECURE 2.0 Act, this tax has been reduced to 25%, and it could drop to 10% if you take action to withdraw the missed RMD within two years.

To solve this problem, the SECURE 2.0 Act introduced a statute of limitations tied to when individual files their federal income tax return, Form 1040. If no federal income tax return is required, the statute period begins on what would have been the tax filing deadline. This new statute of limitations covers missed RMDs for three years and excess IRA contributions for six years but doesn’t apply to early distributions.

Form 5329 left the statute of limitations open indefinitely, allowing penalties and interest to accumulate unnoticed. A positive outcome happened once Congress addressed the issue. However, even with these changes, there are still exceptions retirees should make note of.

Exceptions to the Rule

While the 3-year statute of limitations relieves many retirees, it’s essential to be aware of exceptions. Not all missed RMDs qualify for this extended correction period. Here are some important exceptions:

  1. Extended Statute for Excess IRA Contributions: The SECURE 2.0 Act extends the statute of limitations to 6 years for the 6% excess IRA contribution penalty. However, this relief is unavailable if an IRA has acquired property below its fair market value, and the statute of limitations remains indefinite if Form 5329 isn’t filed.
  2. Expansion of IRS Self-Correction Program: SECURE 2.0 broadens the IRS self-correction program, known as the Employee Plans Compliance Resolution System (EPCRS), to include inadvertent individual retirement account errors, including a waiver for failure to take RMDs. Note that self-correction for IRAs under EPCRS may not be available for two years, as SECURE 2.0 grants the IRS that timeframe to guide this matter.
  3. Elimination of RMDs for Roth 401(k)s: SECURE 2.0 brings welcome relief by eliminating required minimum distributions (RMDs) for Roth 401(k)s and other employer Roth plans. While Roth IRAs were never subject to lifetime RMDs, Roth 401(k)s were. Starting in 2024, individuals will not need to roll over Roth 401(k) funds to a Roth IRA to avoid RMDs, as these funds will be exempt from RMDs.

Working With a Fiduciary Advisor

It’s important to understand how the recent law changes affect your IRA. One of the more relevant topics IRA owners should be aware of is a Required Minimum Distribution (RMD). Partnering with a trusted Fiduciary Advisor can play a crucial role in helping you manage your RMDs effectively so you meet your legal obligations while optimizing your financial situation. They can also offer tailored guidance to help maximize your retirement savings while following IRS rules.

You don’t have to battle the confusing regulations for certain required minimum distributions alone. From advice on understanding your specific RMD obligations, to helping you explore tax-efficient ways to manage your RMDs, Agemy Financial Strategies works alongside you to assess your retirement income needs and create a plan for your unique needs and goals.

Final Thoughts

This 3-year statute of limitations provision is yet one more reason why we anxiously await proposed Regulations from the IRS with respect to how the SECURE Act 2.0 will be interpreted. There are several other provisions in the Act that need a lot of clarification. A solid understanding of Required Minimum Distributions is essential for anyone with tax-advantaged retirement accounts. Failing to comply with RMD rules can result in costly penalties, potentially derailing your retirement plans.

By staying informed about when RMDs apply, how they’re calculated, and your options for managing them, you can confidently navigate this aspect of retirement planning. If you’re ready to take the first step to achieving your retirement goals, our team is here to assist you. The better you comprehend your financial strategy, the more effectively you can manage your finances.

For a detailed list of our service offerings, see here.

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Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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