Financial Planning

Given the importance of the new federal law to business owners, we’re re-publishing this article, which appeared in the October newsletter.

The Corporate Transparency Act (CTA) is a new federal law that aims to curtail money laundering and other illegal activities by making it clear who the individuals behind a particular business entity are.

The CTA was enacted in early 2021 and requires “reporting companies” to file information by January 1, 2025.

If you are a small business owner or own a corporate entity, such as an LLC, you likely will be required to report your company’s beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) bureau, which is a division of the US Department of the Treasury.

We encourage all our clients who think that they might be subject to the CTA to contact their CPA or attorney to determine if they are subject to CTA reporting and to assist in handling the filing.

Below are links to resources so that you can learn more about the CTA if you think you might be required to file.

Key CTA Resources:

• FinCEN Landing Page
• BOI Frequently Asked Questions

Moore Financial Advisors cannot give specific CTA advice or assist with actual filing.

-RK

Our colleague and MFA founder Susan Moore contributed the following update on Medicare.

Medicare open enrollment period starts October 15 and continues through December 7.

During the open enrollment period, Medicare enrollees can make certain changes in their coverage. Here are some of the changes you might consider during this enrollment period:

• If you’re enrolled in original (traditional) Medicare, change your Part D drug plan
• If you’re enrolled in Medicare Advantage, switch to a different Advantage plan
• Switch from original Medicare to Medicare Advantage
• Switch from Medicare Advantage to original Medicare – but note below that limitations apply in some states

This year’s enrollment period may be one of the more significant in Medicare’s 59-year history due to some of the changes that are coming. Here is what we know about Medicare changes and costs for 2025.

Medicare Part D

Most Advantage plans include drug coverage at no extra cost, but many people on original Medicare buy a stand-alone Part D plan for drug coverage. While the average projected monthly Part D premium will decrease to $46.50 from $53.95 in 2024, some plans have announced significant increases in premiums.

For this reason, it’s especially important this year to shop for your Plan D coverage. You may be able to lower your annual drug costs by switching to a different Plan D.

To compare plans, go to the Medicare.gov site and set up your account. In the “What do you want to do?” section, select “Open all options”, then “Find health & drug plans.”

One of the bigger developments for 2025 is a new, $2,000 cap on out-of-pocket drug costs. It applies to drug coverage through both stand-alone Part D and Advantage plans.

But it only applies to covered drugs, so it’s really important to make sure your plan covers the specific medications you take. Approximately 1.5 million Medicare beneficiaries have drug costs that exceed that amount, so this change will be a big help to them.

Switching to a Different Medicare Advantage Plan

Medicare Advantage plans are also seeing big changes. Insurers are facing increasing cost pressures, and many will push higher expenses onto members.

Enrollees may see changes in out of pocket costs. Although the average monthly premium for all Advantage plans is likely to drop slightly, it’s important to pay attention to changes in copays, deductibles, and other benefits (e.g., dental, vision, health clubs, etc.)

Switching from Medicare Advantage to Original Medicare

Some Advantage plans may even exit the market next year. If your Medicare Advantage plan is being eliminated, you must actively enroll in a new plan to stay in the Advantage program.

If you don’t make a choice, you will automatically be placed in traditional Medicare for 2025 and have the chance to buy a Medigap supplement plan without going through an underwriting process.

Normally in most states (except during a narrow period when you first enroll in Medicare,) when someone switches from Advantage to original Medicare, they must pass underwriting to buy a Medigap supplement plan. (MA, CT, ME and NY do not allow Medigap insurers to require underwriting for those who switch.)

If you switch from Medicare Advantage to original Medicare because your insurer exited the market, you will not have to undergo underwriting in order to obtain a Medigap plan.

Some people switch from Medicare Advantage to original Medicare because they don’t like the restricted network of an Advantage plan, or because frequent copays for services have become expensive.

If you make this change and you want drug coverage, be sure to sign up for a Medicare stand-alone prescription drug plan (Plan D), unless you have creditable drug coverage from another source. If you do not, and you decide to sign up for Part D coverage later, you may face a penalty for late enrollment.

And if you want a Medicare Supplement Plan (or Medigap Plan, which covers most out of pocket costs) you’ll need to sign up for that then, too.

In most states (except MA, CT, ME, and NY) Medigap insurers are not required to sell you a policy after your first year on Medicare if you don’t meet the medical underwriting requirements. In that situation, they can deny coverage or charge higher premiums.

Medicare Part B

Everyone who has Medicare coverage (original Medicare or Medicare Advantage) gets Medicare Part A free, but pays for Medicare Part B.

The Centers for Medicare & Medicaid Services (CMS) hasn’t said yet how much the base cost of Part B will be in 2024, but the annual Medicare Trustees report in March forecast the monthly price to rise from $174.70 to $185.00, a 6% increase, in 2025.

Income-Related Monthly Adjustment Amount (IRMAA)

Some people pay more in IRMAA charges for Medicare Part B and Part D based on income.

Your tax return for 2023 will be used to determine whether you will be subject to an IRMAA charge for 2025. If you retired in or after 2023, or had another life-changing event (e.g., marriage, divorce, death of spouse, etc.) you can file form SSA-44 to request that your IRMAA amount be reduced or eliminated.

IRMAA charges have not been released yet for 2025 but are expected to be about 6% higher than in 2023.

If you have questions or would like help evaluating your Medicare options, please let us know.

-SM

Most people who have inherited a retirement account since 2020 must take minimum distributions every year if the original owner was already old enough to be taking Required Minimum Distributions (RMDs). And beneficiaries must withdraw whatever is left over by the tenth year.

The original SECURE Act, which took effect in 2020, included rule changes for retirement account withdrawals, including a requirement to empty an Inherited IRA within ten years, if you inherited it after 2019 (the “10-Year Rule”).

But since passage of the Act, there has been confusion regarding how beneficiaries who are not surviving spouses must handle their inherited retirement account withdrawals.

We’ve written on this topic previously in April 2024 and August 2023, and now we have clarity through Final Regulations issued by the IRS on July 18, 2024.

Non-Eligible Designated Beneficiaries (essentially anyone who is not a surviving spouse) must take RMDs annually from Inherited IRAs.

The RMD is a minimum amount that’s calculated by dividing the account’s balance at the end of the previous year by the owner’s remaining life expectancy, using the IRS’s actuarial data. Account owners can take larger distributions, which may be advantageous in lower-tax years.

If you inherited an IRA after 2019 and have not taken a distribution or have missed a year, that’s OK.

The IRS has confirmed that there will be no penalty and no requirement to make up a missed distribution – which means the new regulation effectively starts with RMDs required to be taken in 2025.

In addition to this, there is other regulatory guidance for specific circumstances where the new rules for Eligible and Non-Eligible Designated Beneficiaries apply.

These regulations introduce more complexity to the process of tax planning around retirement accounts, particularly after the death of the account’s original owner.

If you’ve inherited an IRA after 2019 and have questions regarding your withdrawals, please reach out to us.

-RK

Our colleague and MFA founder Susan Moore contributed the following update on Social Security

As financial advisors, a frequent concern we hear from clients revolves around the future of Social Security benefits. Many are understandably worried about whether these benefits will be available when they retire, especially amidst reports of potential funding shortfalls.

We’ll share below the latest projections for Social Security funding and then explore the measures being proposed to ensure its long-term viability.

Current Projections for Social Security

The Social Security program is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA). However, demographic shifts such as declining birth rates and increasing longevity are leading to fewer workers supporting more retirees, which puts a strain on the system.

According to the most recent Social Security Trustees Report, the Social Security trust funds are projected to be depleted by 2035, one year later than projected in last year’s report, if no changes are made.

At that point, incoming payroll taxes will be sufficient to pay 83% of scheduled benefits. This projection highlights the need for reform to ensure that full benefits continue to be paid.

Proposed Measures to Strengthen Social Security

Several measures have been proposed by policymakers to address the funding challenges faced by Social Security. These proposals typically fall into three categories: increasing revenue, reducing promised future benefits, or a combination of both. Here are some of the most discussed options:

Increasing Revenue

• Raise the payroll tax rate: One proposal is to increase the payroll tax rate, which is currently 12.4% (split between employers and employees), to bring more funds into the system.
• Lift the payroll tax cap: Currently, payroll taxes are not collected on incomes above a certain threshold ($168,600 in 2024). Removing or increasing this cap could significantly boost Social Security’s funding.
• Introduce new revenue streams: Some have suggested introducing new sources of income for the trust fund, such as taxes on certain types of unearned income.

Reducing Benefits

• Increase the full retirement age: Gradually raising the age at which retirees qualify for full benefits could reduce the system’s expenditures.
• Modify the cost-of-living adjustments (COLA): Tying COLA to a different index that grows more slowly could decrease the annual increase in benefits, thus saving money over time.

Combination Approaches

• Means testing: Reducing benefits for high-income retirees could help focus resources on those most in need.
• Balanced approaches: Some proposals suggest a balanced approach that includes both modest tax increases and benefit reductions, aiming to spread the impact across different demographics and income groups.

One thing that’s important to note: all of the proposed measures described above would impact future Social Security recipients.

None of the measures that we have seen (except for the possible limit on the annual COLA) propose changes to benefits for those who are already receiving Social Security benefits.

What This Means for You

For individuals planning for retirement, the uncertainty surrounding Social Security underscores the importance of retirement planning. Depending on Social Security alone for retirement income is increasingly risky.

Here are a few strategies to consider:

• Increase Personal Savings: Boost your personal savings rate and maximize contributions to retirement accounts like IRAs and 401(k)s.
• Maintain a financial plan: We work with our clients to develop their financial plans and to update those plans to ensure that they’ll be able to reach their goals and can look forward to a sound financial future.
• Stay Informed: Keep abreast of changes to Social Security legislation and consider how these might impact your retirement planning. And don’t hesitate to let your congressional representatives know what you think!

Conclusion

While the challenges facing Social Security are concerning, especially for those who have not yet retired, remedies are being considered.

With comprehensive financial planning, we can help you prepare for a variety of future scenarios. As your financial advisors, we are here to help you navigate these uncertainties and develop a retirement strategy that ensures your financial security, regardless of what the future holds for Social Security.

SM 

Spring cleaning season is upon us. As the weather warms and the days lengthen, we typically have a higher level of motivation to clean and refresh our living spaces.

This is also a good time to consider an Estate Plan refresh.

As situations in life change our estate plans should be updated. For example, my oldest and middle sons are now in their mid-20s, and we’ve used this as a trigger to review our estate plan and revise certain elements of it.

It’s advisable for every estate plan to contain the following four legal documents:

1. Will: specifies how a person’s assets should be distributed after their death, and includes an executor who will manage the estate and ensure the will is carried out as written.
2. Durable Power of Attorney: grants another person the authority to make financial decisions on behalf of the individual if they become incapacitated.
3. Medical Power of Attorney(aka Health Care Proxy): grants another person the authority to make medical decisions if the individual is unable to do so themselves.
4. Advance Directive(aka Living Will): specifies an individual’s preferences regarding medical treatments they want to receive or refuse, particularly concerning end-of-life care.

Other elements of estate planning include:

• Trusts, which can be used for various purposes, such as minimizing estate taxes, protecting assets from creditors, or managing assets for minor children.
• Beneficiary Designations, which allow an account owner or policy holder to specify who will receive the assets in those accounts directly upon the holder’s death, bypassing the probate process.
• Guardianship Designations, which allow parents to name a guardian to care for minor children or dependent adults if the parents or current guardians are no longer able to do so.
• Letter of Intent, which is a non-binding document intended to guide the executor or beneficiaries on the personal wishes regarding the distribution of assets or funeral arrangements.

If you need help with sorting through estate planning issues, or thinking about how to go about a refresh if you haven’t updated your plan in some time, the two guides provided below are a good place to start (click on the images to download a pdf).

RK

Issues to Consider When Creating an Estate Plan

Issues to Consider When Reviewing an Estate Plan

For the fourth year in a row, the IRS has provided relief on Required Minimum Distributions (RMDs) for beneficiaries of Individual Retirement Accounts (IRAs) who are subject to the 10-year payout rule.

This class of IRA beneficiary is known as “Non-Eligible Designated Beneficiaries” (beneficiaries who are not surviving spouses) and who inherited IRAs where the original owner died after December 31, 2019.

The original SECURE Act, which took effect in 2020, eliminated the stretch IRA for most IRA and Roth IRA beneficiaries whose original owner died after 12/31/2019, and replaced it with a 10-year withdrawal rule.

On April 16, the IRS issued Notice 2024-35, which excuses RMDs missed in 2024 for Non-Eligible Designated Beneficiaries.

The relief does not apply to RMDs for beneficiaries who inherited IRAs before 2020.

Pre-2020 inheriting beneficiaries are subject to the pre-SECURE Act rules, which allow any designated beneficiary to stretch distributions out over their own lifetime, resulting in smaller RMDs and a smaller annual tax bill.

We provided more information on this topic in our August 18, 2023 blog post entitled: Heir Drama: Inherited IRA Update. The IRS also expects to issue final regulations on this topic later in 2024.

If you fall into the category of Non-Eligible Designated Beneficiary, you may want to consider the impact to your income tax situation over time by delaying distributions. Holding off could mean future spikes in taxable income, and ultimately paying more income tax over time.

-RK

The laws that stipulate how we must handle our personal tax situation are complex and dynamic. Changes can be built into existing statutes and shifting government priorities can also lead to adjustments to the rules.

For example, SECURE 2.0, the 2022 law designed to bolster retirement savings, has over 90 provisions with different effective dates.

Staying on top of what’s new in tax, and making the most of the changes, is an important part of the financial picture for most individuals.

Below are ten key changes in tax law for 2024:

1. Standard Deductions: Married couples get $29,200 plus $1,550 for each spouse 65 or older. Singles can claim $14,600, or $16,550 if age 65 or older.
2. Income Tax Brackets: Income tax rates are unchanged, but the tax brackets have widened out. For example, in 2023, income from $0 – $22,000 was federally taxed at 10%, and income from $22,001 – $89,450 was taxed at 12%. For 2024, the upper bound of the 10% bracket shifts to $23,200, and the 12% range adjusted to $23,201 – $94,300.
3. Capital Gains Tax: Tax rates on long-term capital gains and qualified dividends do not change, but income thresholds to qualify for the various rates go up. For example, the 0% rate for capital gains applies at taxable incomes up to $94,050 for joint filers and $47,025 for singles.
4. Payroll Taxes: The Social Security annual wage base for 2024 is $168,600, which is an $8,400 hike. The Social Security tax rate on employers and employees remains 6.2%, and both pay the 1.45% Medicare tax on all compensation, with no cap.
5. 401(k): the maximum contribution is $23,000. People born after 1975 can contribute an extra $7,500.
6. IRA & Roth Contributions: the contribution cap for IRA and Roth accounts is $7,000 for those up to age 49. If you are age 50 older, the cap is $8,000.
7. Roth IRA Ceilings: Contributions phase out with Adjusted Gross Income (AGI) of $230,000 to $240,000 for couples and $146,000 to $161,000 for singles.
8. IRA Deduction Phaseouts: Couples covered by 401(k)s begin to lose a portion of the tax deduction benefit at $123,000 of AGI and lose it completely at $143,000. For singles, the range is $77,000 – $87,000. If only one spouse is covered by a plan, the phaseout range for deducting pay-ins for the uncovered spouse is $230,000 – $240,000.
9. QCDs:The Qualified Charitable Distribution cap is indexed to inflation, so IRA owners 70 1/2 and older can transfer up to $105,000 in 2024 from their IRAs directly to charity without having to pay tax on the withdrawal.
10. 529s: Funds in 529 education accounts can be rolled over tax-free to a Roth IRA. There is a $35,000 lifetime cap and the 529 must be open for more than 15 years.

RK

SECURE 2.0 was a package of legislation signed into law in December 2022 as a follow-up to the Setting Every Community Up for Retirement Enhancement Act of 2019 (aka SECURE 1.0).

There has been some confusion since the passage of SECURE 2.0 regarding the new treatment of 401(k) contributions for older workers.

Upon passage of the legislation, it was assumed that beginning in 2024, employees who are 50 and older, and whose annual pay exceeds $145,000, would need to make catch up contributions only to a post-tax Roth 401(k). Currently, the maximum allowable 401(k) contribution from employees is $22,500, and the catch up is $7,500, for a total of $30,000 for employees 50 years and older.

The administrative aspects of this impending change caused concern by the administrators of 401(k) plans. The IRS recently provided guidance to clear up the ambiguity. Now, the IRS Is giving two years of administrative relief so payroll providers and others have extra time to implement the change.

For employees who are 50 and older, if your income exceeds $145,000, you can continue to make your catch-up contributions into a pre-tax (traditional) 401(k) account in 2024 and 2025.

Starting in 2026, catch-up contributions for 401(k) plans will need to be made after tax and directed to a Roth version of the 401(k).

RK