Already Planning for 2024 (Part 3)

Categories : Financial, News
September 27, 2023

In advanced mathematics, there is a tenet called Necessary and Sufficient. In financial planning, those terms are applicable to the relationships we maintain with clients, readers, listeners, and within our own business. As fiduciaries, we must always act in the best interests of our clients. As responsible broadcasters, we bring you the best we have every week.

This time every year, we trigger a series of activities falling under the necessary and sufficient umbrella. Necessary for owners of IRAs and other Qualified Retirement Accounts to ensure compliance with Required Minimum Distribution (RMD) rules for people in the affected age group. This includes account holders who reach age 73 in the year 2023. It is necessary to plan and execute their required withdrawals, but that alone is not sufficient. We also need to discuss with these people that they do not actually have to withdraw their first funds in calendar 2023, as their Required Beginning Date (RBD) is March 31, 2024.

For anyone opting to delay their first RMD until next year, it is also necessary to inform them that they will have to take a second RMD, prior to year-end 2024. But that alone still falls short of being sufficient, as we must also verify that their Beneficiary Designations are complete, accurate, up to date, and on file with the custodian of the account. Individual situations change throughout any calendar year, and we must take the initiative to complete our tasks, both necessary and sufficient.

Owners of small businesses have time remaining to adopt most forms of Retirement Plans for 2023, but for those who are best suited to a SIMPLE IRA Plan, it is necessary to have the Plan established by September 30, 2023, to be effective on January 1, 2024. Other successful small business owners (no employees other than the business owner and a spouse, if applicable) can open Individual 401(k) Plans, which offer significantly larger tax-deductible contributions but can be adopted next year, even for 2023.

For participants in existing 401(k) and similar Plans, whose salary deferral contributions are less than optimal so far this year, it is necessary to explain that, unlike IRA contributions, further 2023 salary deferrals must be made from paychecks in 2023. Employers are often slow to react to new requests, so time is of the essence. Opportunity Costs for missed deferrals are steep. Falling short means more income tax today and fewer tax-deferred contributions.

Next week we will discuss the complex topic of Roth Conversions, which can be used to reduce future taxable RMDs, but must be carefully planned and executed to avoid unintended consequences.

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