Pinnacle – On Point June 2023
Musings From the World of Wealth Management
While the debt ceiling negotiations have garnered most of the recent headlines, one thing is for sure: There is no more free lunch. Since the Great Recession of 2008-2009, our national debt has risen by approximately $20 billion to $31.6 billion in total. With the increase in interest rates over the last 14 months, our nation’s interest expense in now just under 13% of tax revenue. The Congressional Budget Office (CBO) projects that interest payments will total $663 billion in fiscal year 2023 and rise rapidly throughout the next decade — climbing from $745 billion in 2024 to $1.4 trillion in 2033. In total, net interest payments will total nearly $10.6 trillion over the next decade.
Last December, “Secure Act 2.0” was signed into law. It contained some significant retirement plan changes for both individuals and businesses. Here are a few of the most noteworthy changes.
- Catch-up contribution limits. Currently, if you are age 50 or older, you can make additional catch-up contributions to a 401(k) plan. Beginning in 2025, for employees age 60-63, the new law increases the catch-up limit from $7,500 to $10,000. Additionally, beginning in 2024, for employees earning more than $145,000, these catch-up contributions must be made to designated Roth accounts. The contributions are made with after-tax dollars, but future payouts are tax-free, as long as certain requirements are met. Also, in 2024, you will no longer have to take lifetime RMDs from Roth 401(k)s.
- Required Minimum Distribution (RMD) age. The new law raises the age participants in 401(k) plans and owners of traditional IRAs must start taking RMDs to age 73. This threshold will jump to age 75 in 2033.
- RMD shortfall penalty. While we’re on the topic of RMDs, the penalty for failing to take one was a punitive 50% of the shortfall between the required amount and the amount that was actually taken. Moving forward, that penalty is cut in half to 25% and could be reduced further to only 10% if you correct the shortfall in a timely manner.
- Qualified Charitable Distributions (QCDs). Taxpayers, age 70 ½ and older, can transfer up to $100,000 directly from an IRA to a charity without the QCD counting as income. Beginning this year, you’re now allowed to include as a QCD, a one-time gift of up to $50,000 to a charitable remainder trust or charitable gift annuity.
As always, we wish you and your family a happy and safe summer season. Enjoy.
Pinnacle Wealth Management Group, Inc.
Securities offered through Private Client Services, Member FINRA/SIPC. Advisory products and services offered through Pinnacle Wealth Management Group, Inc., a Registered Investment Advisor. Private Client Services and Pinnacle Wealth Management Group, Inc., are unaffiliated entities.