The holidays are right around the corner, and 2022 is drawing to a close. Here are essential items to consider for the rest of the year to prepare for 2023.
The end of the year is always a busy time with retirement account deadlines and preparations for the arrival of a new year and the tax season. This year, it seems, has been even busier than usual for us. Here are four things we are talking about at the Slott Report during the final few months of 2022.
1. Getting a jump on year-end deadlines. December 31 is an important deadline for retirement accounts. Many IRA owners need to take their 2022 RMD by that date. Those planning to take advantage of historically low tax rates and convert to Roth IRAs also have an end-of-the-year deadline. Anyone looking to use the Net Unrealized Appreciation (NUA) strategy in 2022 must get their lump sum distribution done by December 31, 2022.
What we are hearing is that getting these transactions done before the last minute is more important than ever. Many financial institutions have internal deadlines for year-end transactions that fall way before December 31. Also, the holidays and persistent staffing problems will likely be hurdles to getting things done in the final days of the year.
Getting ahead of the game and completing these transactions now instead of later is on everyone’s minds.
2. Confusion over IRS SECURE Act regulations. In February, the IRS released the long awaited proposed SECURE Act, and confusion ensued. The IRS took the unexpected position that RMDs would be required during the 10-year period for some beneficiaries of inherited IRAs. This surprise interpretation of the SECURE Act created uncertainty and the IRS had to step in with guidance. Notice 2022-53 provides some temporary relief for these beneficiaries by waiving the 50 % penalty for them for 2021 and 2022 RMDs.
As the year ends, we are hearing from those grateful for the reprieve for this year but wondering what next year will bring. IRS has not given any clear signals of what they will do in the future. We will be waiting for final SECURE Act regulations, which will hopefully give us some answers.
3. The fate of SECURE 2.0. We have been watching the proposed legislation called SECURE 2.0 as it makes its way through Congress. This follow up to the SECURE Act would make many more changes to the retirement account rules, including raising the RMD age and expanding Roth accounts. The proposal has broad bipartisan support. Will it pass this year in the lame duck session? No one really knows but there has been a lot of speculation.
As 2022 draws to a close we at the Slott Report will continue to watch any developments in Washington closely and keep you up to date on any changes.
4. Big Cost of Living Adjustments (COLAs) ahead in 2023 for retirement accounts. The release of the COLAs for the next year by the IRS is usually pretty routine. However, the 2023 COLAs for retirement accounts got us talking because they are much larger than usual. The IRA contribution limit will rise after being the same for several years. Also, the limits for employer plans are going way up.
At the Slott Report, we believe in making lemonade out of lemons. While inflation usually is bad news, the COLAs for retirement accounts offer more opportunities to save in 2023. Also, the large inflation adjustments to the tax brackets for 2023 may open the door to converting more funds to Roth IRAs at lower tax rates.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC