This is going to be a big year for tax and financial planning strategy, and we are here to help. The SECURE Act 2.0 ushered in several changes. The tax cuts implemented in 2017 are getting close to their 2025 expiration. Interest rate increases have not had the same impact everywhere. Additionally, Washington, D.C. will be a focal point this year.
The SECURE Act 2.0 raised the age for mandatory retirement plan distributions to age 73 immediately and to age 75 in 2033. There will soon be allowances for extra plan contributions for those aged 60-63. Small businesses have extra incentives and flexibility in setting up retirement plans, and 529 Plans will now permit rollovers to Roth IRAs under specific circumstances. We look forward to discussing which changes, if any, impact your situation.
The Tax Cut and Jobs Act of 2017 cut personal taxes for most taxpayers, but those cuts will sunset at the end of 2025. The estate tax exclusion will also drop considerably at that point. Where appropriate, Roth conversions, expedited Inherited IRA distributions and advanced gifting should be considered in this interim period. We will work with your CPA and/or estate planning attorney to provide guidance.
Interest rates have jumped sharply over the past couple of years, and most money markets now pay a competitive rate of interest for the first time in years. Many savings accounts, however, have not kept up. If you keep a significant balance in your local bank, check the current interest rate and compare it to short-term Certificate of Deposit (CD) rates. You may be able to increase your interest rate 8-10 times by buying CD’s. In our managed portfolios, we are monitoring cash to keep any large balances invested in competitive money market funds.
Congress needs to raise the debt ceiling by mid-year to avoid government default. We expect this will be done, but with a lot of debate and compromise required in the process. Soon after, they will need to pass an Appropriations Bill to fund the government for the next fiscal year. Finally, the Farm Bill Reauthorization must be passed to fund SNAP and agricultural efforts. With narrow margins of majority and deep divisions within both political parties, we expect a rocky road to get these goals accomplished.