SECURE 2.0 Adds New Early Withdrawal Exceptions

Normally, an early withdrawal (distribution) from a pre-tax retirement account comes with a 10% federal income tax penalty, but under certain conditions, the tax code has always provided a few exceptions.

The 10% penalty tax generally applies to withdrawals prior to age 59½ from IRAs, employer-sponsored plans such as 401(k) and 403(b) plans, and traditional pension plans, unless an exception applies. The penalty is assessed on top of ordinary income taxes.

For example, exceptions to penalty taxes apply in hardship cases, or if you agree to withdraw substantially equal payments for a minimum length of time. Note that you avoid the 10% tax penalty but not any regular taxes due on the distribution.

The SECURE 2.0 Act, passed as part of an omnibus spending bill in December 2022, added new exceptions to the 10% federal income tax penalty for early withdrawals from tax-advantaged retirement accounts. The Act also expanded an existing exception that applies specifically to employer plans. These exceptions are often called 72(t) exceptions, because they are listed in Section 72(t) of the Internal Revenue Code.

New exceptions

Here are the new exceptions with their effective dates. Withdrawals covered by these exceptions can be repaid within three years to an eligible retirement plan. If repayment is made after the year of the distribution, an amended return would have to be filed to obtain a refund of any taxes paid.

• Disaster relief — up to $22,000 for expenses related to a federally declared disaster if the distribution is made within 180 days of the disaster occurring; the distribution is included in gross income equally over three years, beginning with the year of distribution, unless the taxpayer elects to report the full amount in the year of distribution (effective for disasters on or after January 26, 2021)
• Terminal illness — defined as a condition that will cause death within seven years as certified by a physician (effective 2023)
• Emergency expenses — one distribution per calendar year of up to $1,000 for personal or family emergency expenses to meet unforeseeable or immediate financial needs; no further emergency distributions are allowed during the three-year repayment period unless the funds are repaid or new contributions are at least equal to the withdrawal (effective 2024)
• Domestic abuse — the lesser of $10,000 (indexed for inflation in future years) or 50% of the account value for an account holder who certifies that he or she has been the victim of domestic abuse (physical, psychological, sexual, emotional, or economic abuse) during the preceding one-year period (effective 2024)

Expanded exception for employer accounts

The 10% penalty does not apply for distributions from an employer plan to an employee who leaves a job after age 55, or age 50 for qualified public safety employees. SECURE 2.0 extended the exception to public safety officers with at least 25 years of service with the employer sponsoring the plan, regardless of age, as well as to state and local corrections officers and private-sector firefighters.

Previously established exceptions

These exceptions to the 10% early withdrawal penalty were in effect prior to the SECURE 2.0 Act. They cannot be repaid unless indicated. Exceptions apply to distributions relating to:

• Death or permanent disability of the account owner
• A series of substantially equal periodic payments for the life of the account holder or the joint lives of the account holder and designated beneficiary
• Unreimbursed medical expenses that exceed 7.5% of adjusted gross income
• Up to $5,000 for each spouse (from individual accounts) for expenses related to the birth or adoption of a child; can be repaid within three years to an eligible retirement plan
• Distributions taken by an account holder on active military reserve duty; can be repaid up to two years after end of active duty to an individual retirement plan
• Distributions due to an IRS levy on the account
• (IRA only) Up to $10,000 lifetime for a first-time homebuyer to buy, build, or improve a home
• (IRA only) Health insurance premiums if unemployed
• (IRA only) Qualified higher education expenses

These exceptions could be helpful if you are forced to tap your retirement account prior to age 59½. However, keep in mind that the greatest penalty for early withdrawal from retirement savings may be the loss of future earnings on those savings. Some employer plans allow loans that might be a better solution than an early withdrawal.

Retirement account withdrawals can have complex tax consequences and other costs. Consider calling on us for advice and possible alternative sources of funds before taking specific action with your retirement plan assets.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so are your financial plan and investment objectives.

There's Still Time to Fund an IRA for 2022

The tax filing deadline is fast approaching, which means time is running out to fund an IRA for 2022.

If you had earned income as an employee or self-employed person last year, you may be able to contribute up to $6,000 for 2022 ($7,000 for those age 50 or older by December 31, 2022) up until your tax return due date, excluding extensions. For most people, that date is Tuesday, April 18, 2023.

You can contribute to a traditional IRA, a Roth IRA, or both. Total contributions cannot exceed the annual limit or 100% of your taxable compensation, whichever is less. You may also be able to contribute to an IRA for your spouse for 2022, even if your spouse didn't have earned income.

Traditional IRA contributions may be deductible

If you and your spouse were not covered by a work-based retirement plan in 2022, your traditional IRA contributions are fully tax deductible.

If you were covered by a work-based plan, you can take a full deduction if you're single and had a 2022 modified adjusted gross income (MAGI) of $68,000 or less, or if married filing jointly, with a 2022 MAGI of $109,000 or less. You may be able to take a partial deduction if your MAGI fell within the following limits:

Filing as:	MAGI is between:
Single/Head of household	$68,000 and $78,000*
Married filing jointly	$109,000 and $129,000*
Married filing separately	$0 and $10,000*

*No deduction is allowed if your MAGI is more than the above listed maximum MAGI.

If you were not covered by a work-based plan but your spouse was, you can take a full deduction if your joint MAGI was $204,000 or less, a partial deduction if your MAGI fell between $204,000 and $214,000, and no deduction if your MAGI was $214,000 or more.

Consider Roth IRAs as an alternative

If you can't make a deductible traditional IRA contribution, a Roth IRA may be a more appropriate alternative. Although Roth IRA contributions are not tax-deductible, investment earnings and qualified distributions** are tax-free.

You can make a full Roth IRA contribution for 2022 if you're single and your MAGI was $129,000 or less, or if married filing jointly, with a 2022 MAGI of $204,000 or less.

Partial contributions may be allowed if your MAGI fell within the following limits:

Filing as:	MAGI is between:
Single/Head of household	$129,000 and $144,000*
Married filing jointly	$204,000 and $214,000*
Married filing separately	$0 and $10,000*

*You cannot contribute if your MAGI is more than the above listed maximum MAGI.

Tip: If you can't make an annual contribution to a Roth IRA because of the income limits, there is a workaround, often referred to as a “Backdoor Roth IRA” contribution. You can make a nondeductible contribution to a traditional IRA and then immediately convert that traditional IRA to a Roth IRA. Keep in mind, however, that you'll need to aggregate all traditional IRAs and SEP/SIMPLE IRAs you own — other than IRAs you've inherited — when you calculate the taxable portion of your conversion.

**A qualified distribution from a Roth IRA can be made after the account is held for at least five years and the account owner reaches age 59½, becomes disabled, or dies. Under this so called 5-year rule, if you make a contribution  — no matter how small — to a Roth IRA for 2022 by your tax return due date, and it is your first Roth IRA contribution, your five-year holding period starts on January 1, 2022. Regardless of your Roth contribution’s holding period, in an emergency, you can withdraw your Roth IRA contributions (not the earnings) without penalty at any time.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

SECURE 2.0 Changes the Required Minimum Distribution Rules

The SECURE 2.0 legislation included in the $1.7 trillion appropriations bill passed late last year builds on changes established by the original "Setting Every Community Up for Retirement Enhancement Act" (SECURE 1.0) enacted in 2019. SECURE 2.0 includes significant changes to the rules that apply to required minimum distributions from IRAs and employer retirement plans. Here's what you need to know.

What Are Required Minimum Distributions or RMDs?

Required minimum distributions, sometimes referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and employer retirement plans after you reach a certain age or, in some cases, retire. You can withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal tax penalty.

The RMD rules are designed to spread out the distribution of your entire interest in an IRA or plan account over your lifetime. The RMD rules aim to ensure that funds are utilized during retirement instead of remaining untouched and benefiting from continued tax deferral until left as an inheritance. RMDs generally have the effect of producing taxable income during your lifetime.

These lifetime distribution rules apply to traditional IRAs, Simplified Employee Pension (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, as well as qualified pension plans, qualified stock bonus plans, and qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also subject to these rules. If you are uncertain whether the RMD rules apply to your employer plan, you should consult your plan administrator or us.

Here is a brief overview of how the new legislation changes the RMD rules.

1. Applicable Age for RMDs Increased

Before the passage of the SECURE 1.0 legislation in 2019, RMDs were generally required to start after reaching age 70½. The 2019 legislation changed the required starting age to 72 for those who had not yet reached age 70½ before January 1, 2020.

SECURE 2.0 raises the trigger age for required minimum distributions to age 73 for those who reach age 72 after 2022. It increases the age again to age 75, starting in 2033. So, here's a summary of when you have to start taking RMDs based on your date of birth:

Date of Birth	Age at Which RMDs Must Commence
Before July 1, 1949	70½
July 1, 1949, through 1950	72
1951 to 1959	73
1960 or later1	75

Your first RMD is for the year you reach the age specified in the chart and generally must be taken by April 1 of the year following the year you reached that age. Subsequent required distributions must be taken by the end of each calendar year. So, if you wait until April 1 of the year after you attain your required beginning age, you'll have to take two required distributions during that calendar year. If you continue working past your required beginning age, you may delay RMDs from your current employer's retirement plan until after you retire.

¹ A technical correction is needed to clarify the transition from age 73 to age 75 for purposes of the RMD rule. As currently written, it is unclear what the correct starting age is for an individual born in 1959 who reaches age 73 in the year 2032.

2. RMD Penalty Tax Decreased

The penalty for failing to take a RMD is steep — historically, a 50% excise tax on the amount by which you fell short of the required distribution amount.

SECURE 2.0 reduces the RMD tax penalty to 25% of the shortfall, effective this year. Still steep, but better than 50%.

Also effective this year, the Act establishes a two-year period to correct a failure to take a timely RMD distribution, with a resulting reduction in the tax penalty to 10%. Basically, if you self-correct the error by withdrawing the required funds and filing a return reflecting the tax during that two-year period, you can qualify for the lower penalty tax rate.

3. Lifetime RMDs from Roth Employer Accounts Eliminated

Roth IRAs have never been subject to lifetime RMDs. That is, a Roth IRA owner does not have to take RMDs from the Roth IRA while he or she is alive. Distributions to beneficiaries are required after the Roth IRA owner's death, however.

The same has not been true for Roth employer plan accounts, including Roth 401(k) and Roth 403(b) accounts. Plan participants have been required to take minimum distributions from these accounts upon reaching their RMD age or avoid this requirement by rolling over the funds in the Roth employer plan account to a Roth IRA.

Beginning in 2024, the SECURE 2.0 legislation eliminates the lifetime RMD requirements for all Roth employer plan account participants, even those participants who had already commenced lifetime RMDs. Any lifetime RMD from a Roth employer account attributable to 2023 but payable in 2024 is still required.

4. Additional Option for Spouse Beneficiaries of Employer Plans

The SECURE 2.0 legislation provides that, beginning in 2024, when a participant has designated his or her spouse as the sole beneficiary of an employer plan, a special option is available if the participant dies before RMDs have commenced.

This provision will permit a surviving spouse to elect to be treated as the employee, similar to the already existing provision that allows a surviving spouse who is the sole designated beneficiary of an inherited IRA to elect to be treated as the IRA owner. This will generally allow a surviving spouse the option to delay the start of RMDs until the deceased employee would have reached the appropriate RMD age or until the surviving spouse reaches the appropriate RMD age, whichever is more beneficial. This will also generally allow the surviving spouse to utilize a more favorable RMD life expectancy table to calculate distribution amounts.

5. New Flexibility Regarding Annuity Options

Starting in 2023, the SECURE 2.0 legislation makes specific changes to the RMD rules that allow for some additional flexibility for annuities held within qualified employer retirement plans and IRAs. Allowable options may include:

• Annuity payments that increase by a constant percentage provided certain requirements are met.
• Lump-sum payment options that shorten the annuity payment period
• Acceleration of annuity payments payable over the ensuing 12 months
• Payments in the nature of dividends
• A final payment upon death that does not exceed premiums paid less total distributions made

It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits beyond those available through the tax-deferred retirement plan. If you plan to purchase an annuity in your IRA, you should talk to us or your financial planner first. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals before age 59½ may be subject to a 10% federal tax penalty.

These are just a few of the many provisions in the SECURE 2.0 legislation. The rules regarding RMDs are complicated. While the changes described here provide significant benefits to individuals, the rules remain difficult to navigate, and you should consult a tax professional like us to discuss your individual situation.

If you would like to review your current investment portfolio or discuss any RMD planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so are your financial plan and investment objectives.

Are Interest Rates Signaling a Recession?

According to Investopedia, the yield curve is a graph showing the relationship between bond yields (the interest rates shown on the vertical axis) and bond maturity (the time shown on the horizontal axis).

Long-term bonds generally provide higher yields than short-term bonds because investors demand higher returns to compensate for the risk of lending money over an extended period. Occasionally, however, this relationship flips, and investors are willing to accept lower yields in return for the relative safety of longer-term bonds. This is called a yield curve inversion because a graph showing bond yields in relation to maturity is essentially turned upside down.

Imagine going to the bank and being told that a 1-year certificate of deposit yields 4.0%, but the 5-year CD only yields 3.0%. Few people would lock up their money for five times as long and earn a lower rate. This is an example of a yield inversion.

A yield curve could also apply to any bonds that carry similar risk, but the most studied curve is for U.S. Treasury securities, and the most common focal point is the relationship between the two-year and 10-year Treasury notes. Although Treasuries are often referred to as bonds, maturities up to one year are called bills, while maturities of two to 10 years are called notes. Only 20- and 30-year Treasuries are officially called bonds.

The two-year yield has been higher than the 10-year yield since July 2022, and beginning in late November, the difference has been at levels not seen since 1981. The biggest separation in 2022 came on December 7, when the two-year was 4.26%, and the 10-year was 3.42%, a difference of 0.84%. Other short-term Treasuries have also offered higher yields;  the highest yields in early 2023 were for the six-month and one-year Treasury bills. (1) 

Predicting Recessions

An inversion of the two-year and ten-year Treasury notes has preceded each recession over the past 50 years, reliably predicting a recession within the next one to two years. (2)  A 2018 Federal Reserve study suggested that an inversion of the three-month and ten-year Treasuries may be an even more reliable indicator, predicting a recession within about 12 months. (3) The three-month and ten-year Treasuries have been inverted since late October 2022, and in December 2022 and early January 2023, the difference was often greater than the inversion of the two- and 10-year notes. (4)

Weakness or Inflation Control?

Yield curve inversions do not cause a recession; rather they indicate a shift in investor sentiment that may reflect underlying economic weakness. A normal yield curve suggests investors believe the economy will continue to grow and interest rates will likely rise with the growth. In this scenario, an investor typically would want a premium to tie up capital in long-term bonds and potentially miss out on other opportunities in the future.

Conversely, an inversion suggests that investors see economic challenges that are likely to push interest rates down and typically would instead invest and lock in longer-term bonds at today's yields. This increases demand for long-term bonds, driving prices up and yields down.

Note that bond prices and yields move in opposite directions; the more you pay for a bond that pays a given coupon interest rate, the lower the yield will be, and vice-versa.

The current situation is not so simple. The Federal Reserve has rapidly raised the benchmark federal funds rate (short-term) to combat inflation, increasing it from near 0% in March 2022 to 4.50%–4.75% today. The fed funds rate is the rate charged for overnight loans within the Federal Reserve System.  The funds rate directly affects other short-term rates, which is why yields on short-term Treasuries have increased rapidly. The fact that 10-year Treasuries have lagged the increase in the federal funds rate may mean that investors believe a recession is coming. But it could also reflect the confidence that the Fed is winning the battle against inflation and will lower rates over the next few years. This is in line with the Federal Reserve’s (The Fed) projections, which see the funds rate peaking at 5.0%–5.25% by the end of 2023 and then dropping to 4.0%–4.25% in 2024 and 3.0%–3.25% in 2025. (5)

Inflation has been slowing somewhat in October-December, but there is a long way to go to reach the Fed's target of 2% inflation for a healthy economy. (6)  The fundamental question remains the same as it has been since the Fed launched its aggressive rate increases: Will it require a recession to control inflation, or can it be controlled without shifting the economy into reverse?

Other Indicators and Forecasts

The yield curve is one of many indicators that economists consider when making economic projections. Among the most closely watched are the ten leading economic indicators published by the Conference Board, with data on employment, interest rates, manufacturing, stock prices, housing, and consumer sentiment. The Leading Economic Index, which includes all ten indicators, fell for nine consecutive months through November 2022. Conference Board economists predict a recession beginning around the end of 2022 and lasting until mid-2023. (7) Recessions are not officially declared by the National Bureau of Economic Research until they are underway. The Conference Board view would suggest the United States may already be in a recession.

In The Wall Street Journal's October 2022 Economic Forecasting Survey, most economists believed the United States would enter a recession within the next 12 months, with an average expectation of a relatively mild 8-month downturn. (8) More recent surveys of economists for the Securities Industry and Financial Markets Association and Wolters Kluwer Blue Chip Economic Indicators also found a consensus for a mild recession in 2023. (9)

For now, the economy appears strong despite high inflation, with a low December 2022 unemployment rate of 3.5% and an estimated 2.9% 4^th quarter growth rate for real gross domestic product (GDP). Nonetheless, the indicators and surveys discussed above suggest an economic downturn in the next year or so. This would likely cause some job losses and other temporary financial hardship, but a brief recession may be the necessary price to tame inflation and put the U.S. economy on a more stable track for future growth.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so are your financial plan and investment objectives.

Retirement Investors Get Another Boost from Washington

If the Inflation Reduction Act passed earlier this year wasn’t amusing enough for having the exact opposite effect, the latest bill will certainly cement Congress’ sense of humor when it comes to fighting inflation.

Amid the 1,650-page, $1.7 trillion omnibus spending legislation passed by Congress last week and signed by President Biden this week, were several provisions affecting work-sponsored retirement plans and, to a lesser degree, IRAs. Dubbed the “SECURE 2.0 Act of 2022” after the similarly sweeping “Setting Every Community Up for Retirement Enhancement Act” passed in 2019, the legislation is designed to improve the current and future state of retiree income in the United States.

"This important legislation will enhance the retirement security of tens of millions of American workers — and for many of them, give them the opportunity for the first time to begin saving," said Brian Graff, CEO of the American Retirement Association.

What Does the Legislation Do?

The following is a brief summary of some of the most notable initiatives. All provisions take effect in 2024 unless otherwise noted.

• A later age for required minimum distributions (RMDs). The 2019 SECURE Act raised the age at which retirement savers must begin taking distributions from their traditional IRAs and most work-based retirement savings plans to 72. SECURE 2.0 raises that age again to 73 beginning in 2023 and 75 in 2033.
• Reduction in the RMD excise tax. Current law requires those who fail to take their full RMD by the deadline, to pay a tax of 50% of the amount not taken. The new law reduces that tax amount to 25% in 2023; the tax is further reduced to 10% if account holders take the full required amount and report the tax by the end of the second year after it was due and before the IRS demands payment.
• No RMDs from Roth 401(k) accounts. Bringing Roth 401(k)s and similar employer plans in line with Roth IRAs, the legislation eliminates the requirement for savers to take minimum distributions from their work-based plan Roth accounts.
• Higher limits and looser restrictions on qualified charitable distributions (QCDs) from IRAs. QCDs are a great way to give your RMD (or more) to charity and thereby avoid taxes on the distribution. The amount currently eligible for a QCD from an IRA ($100,000) will be indexed for inflation. In addition, beginning in 2023, investors will be able to make a one-time charitable distribution of up to $50,000 from an IRA to a charitable remainder annuity trust, charitable remainder unitrust, or charitable gift annuity.1
• Higher catch-up contributions. Currently, taxpayers age 50 and older can make an additional “catch-up” contribution to their IRAs and 401(k)’s. The IRA catch-up contribution limit will now be indexed annually for inflation, similar to work-sponsored catch-up contributions. Also, starting in 2025, people age 60 to 63 will be able to contribute an additional minimum of $10,000 for 401(k) and similar plans (and at least $5,000 extra for SIMPLE plans) each year to their work-based retirement plans. Moreover, beginning in 2024, all catch-up contributions for those making more than $145,000 will be after-tax (Roth contributions).
• Roth matching contributions. The new law permits employer matches to be made to Roth accounts. Currently, employer matches must go into an employee's pre-tax account. This provision takes effect immediately; however, it may take some time for employers to amend their retirement plans to include this feature.
• Automatic enrollment and automatic saving increases. Beginning in 2025, the Act requires most new work-sponsored plans to automatically enroll employees with contribution levels between 3% and 10% of income, and it automatically increases their savings rates by 1% a year until they reach at least 10% (but not more than 15%) of income. Workers will be able to opt out of the programs.
• Emergency savings accounts. The legislation includes measures that permit employers to automatically enroll non-highly compensated workers into emergency savings accounts to set aside up to  $2,500 (or a lower amount that an employer stipulates) in a Roth-type account. Savings above this limit and any employer matching contributions would go into the traditional retirement account.
• Matching contributions for qualified student loan repayments. Employers may help workers repaying qualified student loans simultaneously save for retirement by investing matching contributions in a retirement account in the employee's name.
• 529 rollovers to Roth IRAs. People will be able to directly roll over up to a total of $35,000 from 529 plan accounts to Roth IRAs for the same beneficiary, provided the 529 accounts have been held for at least 15 years. Annually, the rollover amounts would be subject to Roth IRA contribution limits.2
• New exceptions to the 10% early-withdrawal penalty. Distributions from retirement savings accounts are generally subject to ordinary income tax. Moreover, distributions prior to age 59½ also may be subject to an early-withdrawal penalty of 10%, unless an exception applies. The law provides for several new exceptions to the early-withdrawal penalty, including an emergency personal expense, terminal illness, domestic abuse, to pay long-term care insurance premiums, and to recover from a federally declared disaster. Amounts, rules, and effective dates differ for each circumstance.
• Saver's match. Low- and moderate-income savers currently benefit from a tax credit of up to $1,000 ($2,000 for married couples filing jointly) for saving in a retirement account. Beginning in 2027, the credit is re-designated as a match that will generally be contributed directly into an individual's retirement account. In addition, the match is allowed even if taxpayers have no income tax obligation.
• More part-time employees can participate in retirement plans. The SECURE Act of 2019 required employers to allow workers who clocked at least 500 hours for three consecutive years to participate in a retirement savings plan. Beginning in 2025, the new law reduces the second component of that service requirement to just two years.
• Rules for lifetime income products in retirement plans. The Act directs the IRS to ease rules surrounding the offering of lifetime income products  within retirement plans. Moreover, the amount that plan participants can use to purchase qualified longevity annuity contracts will increase to $200,000. The current law caps that amount at 25% of the value of the retirement accounts or $145,000, whichever is less. These provisions take effect in 2023. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals prior to age 59½ may be subject to a 10% penalty tax.
• Retirement savings lost and found. The Act directs the Treasury to establish a searchable database for lost 401(k) plan accounts within two years after the date of the legislation's enactment.
• Military spouses. Small businesses that provide immediate enrollment and vesting to military spouses in an eligible retirement savings plan will qualify for new tax credits. This provision takes effect immediately.

These provisions represent just a sampling of the many changes that will be brought about by SECURE 2.0. We look forward to providing more details and in-depth analysis for both individuals and business owners in the months to come as more detailed information becomes available.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so are your financial plan and investment objectives.

Sources: The Wall Street Journal, CNBC, Bloomberg, Kiplinger,Fortune,Plan Sponsor magazine, National Association of Plan Advisors, and the SECURE 2.0 Act of 2022

1 Bear in mind that not all charitable organizations are able to use all possible gifts. It is prudent to check first. The type of organization you select can also affect the tax benefits you receive.

2 As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified education expenses. For withdrawals not used for qualified education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% tax penalty. The tax implications of a 529 savings plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors. Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses - which contain this and other information about the investment options, underlying investments, and investment company - can be obtained by contacting your financial professional. You should read these materials carefully before investing.