Continuing Progress on Legacy Planning Goals

You may have given estate and legacy gift planning some attention but may still have some unfinished business. We are happy to be a resource as you continue your estate and legacy gift planning journey.

1. LOSS OF STRETCH DISTRIBUTION ON MOST INHERITED IRAS

THE TESTAMENTARY CHARITIABLE REMAINDER UNITRUST MAY BE WORTH CONSIDERING

JULY 2023 UPDATE

If you long ago named your children as the beneficiaries of your IRA, you may want to revisit this decision with your financial advisor. Your heirs may end up paying higher taxes on the inheritance they receive because of the removal of the "Stretch Distribution".

The SECURE Act became effective on January 1, 2020. The "10-Year Distribution Rule" was created for most inherited IRAs where the owner passed January 1, 2020 or later. This resulted in requiring full distribution in 10 years for most beneficiaries who were adult children of the IRA owner, instead of over their entire life-time. When the "10-Year-Distribution Rule" was created, it was not clear if the 10-year rule required any RMD for any of the calendar years except for the last year of the 10-year period.

Clarification was attempted by the IRS on October 7, 2022 in Notice 2022-53 . The IRS waived penalties for beneficiaries who "failed" to take 2021 and 2022 RMDs during the time of unclear guidance. Final regulations were to be forthcoming and would apply (at earliest) to the 2023 distribution year.

On July 14, 2023, an advanced version of IRS Notice 2023-54 was issued. It indicates that heirs subject to the 10-year rule are not required to take an RMD in 2023, 2022 or 2021. In the release, the IRS said they expect to release final guidance in 2024.

The Testamentary Charitable Remainder Unitrust

Those who took unnecessary IRA RMDs in 2021, 2022 and 2023, cannot reverse those transactions.

Heirs who inherited IRAs subject to the "10-Year Distribution Rule" from an IRA owner who passed January 1, 2020 or later, still do not have clarity about future RMD requirements.

With the loss of the Stretch Distribution option for many IRA beneficiaries and the lack of clarity around future guidelines, if you are a charitably minded IRA owner, you may want to relook at how to distribute any remainder in your IRA.

When you revisit your estate plan, you may want to ask your advisor about funding a testamentary charitable reminder unitrust with your IRA balance. This plan can provide payments to your heirs, spread out the taxes on their inheritance and provide a future gift to United Way or other charity close to your heart. This is also called a "give it twice trust".

Learn more about testamentary charitable remainder unitrusts here: https://www.unitedwaysbgift.org/?pageID=135

2. REQUIRED MINIMUM DISTRIBUTION AGE

2023 UPDATE (SECURE ACT 2.0) - Starting in 2023, the age for required minimum distributions (RMDs) will increase from 72 to 73. The RMD age will increase again in 2033 to age 75. Individuals who are currently taking RMDs will continue to take a distribution each year based on their age.

3. CATCH-UP CONTRIBUTIONS

2023 UPDATE (SECURE ACT 2.0) - Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. However, starting in 2025 individuals who are 60, 61, 62 or 63 will be permitted to make a larger catch-up contribution. The new amount will be the greater of $10,000 or 150% of the catch-up limit for that year, indexed for inflation.

4. MATCHING CONTRIBUTIONS FOR STUDENT LOAN PAYMENTS

2023 UPDATE (SECURE ACT 2.0) - Many younger workers have substantial student loans and may not be able to make both their student loan payments and fund a retirement plan. Employers will be permitted to match the student loan payments with a contribution to a Section 401(k) or 403(b) retirement plan.

5. Roth 401(k) Plans Exempt from RMDs

2023 UPDATE (SECURE ACT 2.0) - The Roth IRA is currently exempted from distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans also will be exempted from RMDs. With no required distributions, Roth IRA and 401(k) plans will be permitted to increase in value during the life of the owner.

What is the difference between a Roth IRA and a Roth 401(k) Plan?

- With a Roth IRA, investors can choose from the entire universe of investments, including individual stocks, bonds and funds.

- In a 401(k) plan they are limited to the funds their employer plan offers.

6. REQUIRED MINIMUM DISTRIBUTION PENALTY

2023 UPDATE (SECURE ACT 2.0) - The 2022 penalty for failing to take a required minimum distribution is 50%. Starting in 2023, this penalty is reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is reduced further to 10%.

7. SECTION 529 PLANS ROLLOVER TO ROTH IRAS

2023 UPDATE (SECURE ACT 2.0) - A Section 529 plan is frequently used for college savings. If the 529 plan is no longer required because the beneficiary has completed his or her education, then up to $35,000 of that plan may be rolled over into a Roth IRA for the benefit of that individual.

8. QUALIFIED CHARITABLE DISTRIBUTIONS ENHANCED

2023 UPDATE (SECURE ACT 2.0) - The IRA charitable rollover or qualified charitable distribution (QCD) limit of $100,000 for 2023 will be indexed for inflation starting in 2024.

9. ROTH CATCH-UP CONTRIBUTIONS

2023 UPDATE (SECURE ACT 2.0) - Individuals age 50 and above are permitted to make a catch-up contribution to a retirement plan. Starting in 2024, individuals who have incomes over $145,000 will be required to transfer their catch-up contribution to a Roth IRA. This will require them to pay tax on the catch-up contribution, but the future distributions from the Roth account will be tax free.

10. CARES ACT CHARITABLE BENEFITS NOT EXTENDED FOR 2022

2022 UPDATE - The CARES Act charitable income tax benefits that applied to contributions made in 2020 and 2021 have not been extended for 2022.

• There is no above-the-line charitable deduction for filers not itemizing and making a qualified cash contribution to charity. But those age 70½ + can still make a gift through their IRA, reducing their taxable income.)
• The charitable contribution deduction limit for a gift of cash to a public charity is now back to 60 percent of one's adjusted gross income as the 100 percent limit expired as of December 31, 2021.
• The required minimum distribution from most retirement plans has been back since 2021.

11. CHARITABLE BEQUESTS

You may be looking for a way to make a significant gift to help further our mission. A bequest is a gift made through your will or trust. It is one of the most popular and flexible ways that you can support United Way of Santa Barbara County while not impacting your available cash today.
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12. DONOR ADVISED FUNDS

If you have a Donor Advised Fund (DAF) and wish to help United Way this year, you can make a gift from your DAF to support our work without affecting your personal financial security.
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13. ALWAYS UNITED E-NEWS SIGN UP

Always United E-news provides opportunities for donors who are at or near retirement and wish to continue their relationship with United Way. We feature estate planning information and also include news from Washington, Savvy Living tips, volunteer opportunities and other timely articles. Stay up to date on news impacting your retirement. Sign up for Always United E-news today!
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If you are interested in learning more about any of these ideas, please contact us . Please also let us know how we can help you during this time.