The 10-year rule for retirement accounts: How new guidelines could impact your IRA beneficiaries

In 2020, The SECURE Act changed the IRA inheritance landscape – terrain that would shift again in 2022 with the passage of the SECURE Act 2.0. Over the summer, that new ground was firmed up as the IRS finalized regulations that will go into effect January 1, 2025. Here’s a look at the rules and how they could impact your wealth and wealth transfer planning.

One of the biggest changes brought by the original SECURE Act was the introduction of the “10-year rule” for designated beneficiaries, which sought to stem the amount of time inherited money could grow tax-free.

Implemented in January 2020, the 10-year rule requires most non-spouse beneficiaries to withdraw the entire balance of an inherited IRA within 10 years. It also set parameters around timing, distributions and beneficiary categories.

SECURE Act 1.0:
Required with some exceptions, that the entire balance of an inherited retirement account be distributed within 10 years of the owner’s death; raised the age when RMDs must be taken:

RMDs begin at 72 for those born between July 1, 1949 and 1950.

SECURE Act 2.0:
Maintained the 10-year rule; further raised the age at which RMDs must be taken:

RMDs begin at 73 for those born between 1951 and 1959 and at 75 for those born after 1960.

Key guidelines

Required minimum distributions (RMDs)
The minimum amount that must be withdrawn from a retirement account each year after the account owner reaches the designated age.

Required beginning date (RBD)
The date by/on which the first RMD must be taken. This date is April 1 of the year after an IRA owner reaches their applicable RMD start age (currently 73).

Eligible designated beneficiaries (EDBs)
Beneficiaries who may take distributions over their life expectancy – but may also choose to apply the 10-year rule, depending on their situation, including:

• Spouses
• Individuals not more than 10 years younger than the retirement plan account or IRA owner (this includes an individual older than the IRA owner)
• Minor children of the retirement plan account or IRA owner only (note: these must be children of the account owner – not a grandchild, niece, nephew, etc. – and after they reach age 21, the account must be depleted within 10 years)
• Disabled individuals
• Chronically ill individuals

Non-eligible designated beneficiaries (NEDBs)
Beneficiaries who are subject to the 10-year rule, including:

• Those not falling into any of the above groups, who inherited from someone who died before their RBD.
• Those not falling into any of the above groups, who inherited from someone who died after their RBD.

“The changes will have the biggest impact for beneficiaries of larger accounts, further exacerbated if those beneficiaries are successful themselves and taxed at higher rates. This compressed time period could force distributions into higher taxer brackets,” said Jim Kidney, CPA®, CPWA®, who supervises the financial planning consulting practice at Raymond James. “Before the 10-year rule, the ‘stretch IRA’ strategy enabled inheritors to spread distributions – and the tax impact – across their life expectancies.”

While that possibility is much more limited now, there are alternative strategies for maximizing IRA funds in line with current regulations.

Considerations for IRA owners

Roth conversion
Converting a traditional IRA to a Roth IRA before an account owner reaches their RBD can keep those converted dollars at a lower tax bracket compared to if they were forced to take it as an RMD from the Traditional IRA later. Furthermore, the converted dollars and associated earnings will be tax free to the owner and ultimately to a beneficiary, provided several conditions are met.

Life insurance
A somewhat more involved planning strategy is to consider using distributions from a pre-tax retirement account to purchase life insurance, allowing the policy holder to name as beneficiary the same person they intended to inherit their retirement account.

Considerations for IRA beneficiaries

Inheritance circumstances
The finer points of how a beneficiary inherits an account will impact how the 10-year rule is applied and how RMDs are managed.

If the account owner dies before their RBD:

A non-eligible beneficiary will need to deplete the account by December 31 of the tenth year following the owner’s death but will not have to take RMDs.

If the account owner dies after their RBD:

A non-eligible designated beneficiary will need to take RMDs in years one through nine, with a final distribution in year 10. This RMD requirement is generally based on the single life expectancy of the beneficiary.

Missed RMDs
Because final guidance regarding the 10-year rule has been shared four years after the rule’s introduction, some beneficiaries could have needed to take RMDs in the intervening period. In many of these cases, the IRS is issuing waivers for missed RMDs. This waiver only applies to non-eligible designated beneficiaries under the 10-year rule who inherited from an IRA owner who died after their RBD.

Distribution timing
For beneficiaries in high tax brackets, it’s important to weigh strategic timing options for distribution. For example, if a beneficiary plans to retire five years after inheriting, it may be most efficient to take minimum distributions while they’re still working and increase payments to deplete the account in their first five years of retirement.

While this rule is settled, the climate is sure to change again, inviting new tax and financial planning implications. To keep your footing, work closely with your financial advisor and, when appropriate, experienced estate planning and tax professionals.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Raymond James does not provide tax or legal advice. Please discuss these matters with the appropriate professional. Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59.5 a 10% federal penalty tax may apply.

Rolling from a traditional IRA into a Roth IRA may involve additional taxation. When converted to a Roth, you pay federal income taxes on the converted amount, but no further taxes in the future. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Each converted amount is subject to its own five-year holding period, unless the owner is 59.5 or older.

Investments & Wealth Institute™ (The Institute) is the owner of the certification marks “CPWA®” and “Certified Private Wealth Advisor®.” Use of CPWA and/or Certified Private Wealth Advisor signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professionals.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Dispelling Medicare misconceptions

Between its parts and plans and supplements, many pre-retirees find Medicare hard to navigate without some guidance. Here are the facts about five common Medicare myths:

Myth: Medicare offers free healthcare.

Fact: The Affordable Care Act allows Medicare beneficiaries an annual wellness check at no charge. Beneficiaries also are entitled to free recommended preventive screenings, such as mammograms and colonoscopies, annual wellness visits and personalized prevention plans. For most people, Medicare Part A – which covers hospital stays and services up to certain limits – does not require a premium. But that’s it. You’re still responsible for copays, coinsurance and deductibles.

Medicare Part B, which covers medically necessary and preventive services, has monthly premiums that start at $174.70 for individuals earning less than $103,000 in 2024 up to $594.00 for individuals earning more than $500,000. Part D, which covers prescriptions, has added surcharges for those making more than $103,000.

Many Medicare beneficiaries also purchase a Medigap supplemental insurance plan to help cover out-of-pocket costs.

Myth: Medicare covers everything.

Fact: Not true. Dental, vision and hearing are not covered by Medicare. Prescription drug coverage is only offered through Part D and Medicare Advantage plans. What’s more, you are responsible for the premiums, deductibles and copayments associated with the coverage you choose.

Myth: A Medicare Advantage plan or Part D coverage will fill gaps in my coverage.

Fact: Medicare can be complicated. Medicare Advantage plans – sometimes known as Part C – offer optional coverage through private insurance companies. Many of these plans cover dental, vision, hearing and prescription drug costs not covered by Parts A and B, which the government sometimes calls “Original Medicare.” However, the plans may have limited networks to keep costs down and beneficiaries will have cost-sharing structures that may vary with different plans.

Part D is optional prescription drug coverage that has myriad variables, such as premiums, copays, coverage gaps and coinsurance. You can choose which prescription drug plan best fits your needs.

Myth: Medicare may not cover me.

Fact: One major advantage of original Medicare is that you can’t be rejected for coverage or be charged higher premiums because you’re sick. However, if you’re a high earner, you’ll pay higher premiums for Medicare Part B and Part D. In addition, the Affordable Care Act now prohibits discrimination based on a pre-existing condition. However, private “medigap plans” can have underwriting after the initial guaranteed issue period.

Myth: I will be notified when it’s time to sign up for Medicare.

Fact: No. Unless you are already receiving Social Security benefits, you must apply for Medicare. You will not receive any official notification on when or how to enroll.

If you’re over 65, still working and covered by employer healthcare, you may want to delay enrollment in Part B to avoid paying for coverage you don’t need. Once you stop working, you must enroll within eight months to avoid permanent late penalties. COBRA Or retiree benefits are not considered creditable coverage and you will be penalized if you have COBRA and sign up for Medicare past the age of 65.

For those without employer coverage, it’s a good idea to sign up when you’re first eligible for Part B.

Source: Medicare.gov

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

As we approach new economic changes, the "what-if monster" rears its head again. This time, we're hearing worried whispers, "What if the Fed changes interest rates?"

What happens if the FED decides to raise, lower, or hold the interest rate? Any change, or even stasis, could potentially have an impact on your finances. After all, the FED plays a critical role in the economy, and interest rates have far-reaching consequences. It's only natural to worry, but with preparation for financial stability, you can make sure the "what-if monster" doesn't keep you up at night.

How the Fed Affects Interest Rates

The Federal Reserve, or "The Fed," uses interest rates as a tool to keep the economy healthy. Interest rates can be used to control inflation, stimulate economic growth, or keep a hot economy from overheating. In the past few years, interest rates have been increasing rapidly to combat inflation. If the Fed changes interest rates, what next?

Will the Fed raise, lower, or hold the rate — and what effects might these choices have?

• Rate Increases: If the interest rates rise, borrowing becomes more expensive. This can impact mortgages, credit cards, and business loans. However, it also means higher returns for savings and interest-bearing accounts.
• Rate Decreases: If the interest rate drops, it can boost economic activity because borrowing becomes more affordable. However, it will lower returns on savings and bonds.
• Holding Rates Steady: If interest rates remain steady, this can indicate economic stability. However, uncertainty can still cause fluctuations in other aspects of the market.

What It Means for Investments If the Fed Changes Interest Rates

Fed decisions regarding the interest rate are often accompanied by market volatility. While that volatility can be the cause or result, long-term investment strategies work best when investors hold fast. Long-term strategies are crafted with volatility as a known factor. Markets may rise and fall, and interest rates may fluctuate, but long-term strategies are designed for profitability and stability through many shifting economic trends.

• Stocks: Rate hikes increase borrowing costs, which can cause short-term dips in stock prices. However, markets typically recover when companies adapt to new economic conditions.
• Bonds: Higher rates reduce bond values, but lower rates increase them. New bonds may also offer higher yields at the new rate. Diversification can help to offset fluctuations in bond values over time.
• Real Estate: Higher interest rates impact mortgage affordability. This may dampen buyer activity in housing markets, but it simultaneously opens new opportunities for buyers in the long run once the spikes in demand settle.

The most important thing to remember is that focusing on long-term goals will result in financial stability. You won't need to react emotionally to short-term market changes if you have a diversified portfolio built on long-term investment strategies.

Preparing for Uncertainty

Although economists often have well-developed theories, no one can accurately foresee the Fed's next move. However, you can take steps to fortify your financial plans and ensure you are ready to weather uncertain market conditions.

1. Review Your Portfolio: At CrossleyShear, we specialize in helping clients build diversified portfolios tailored to their unique goals and risk tolerance. Our personalized approach is designed to strategically align investments to support your financial success.
2. Strengthen Your Emergency Fund: In case rates go up, build up a cash reserve to prepare for higher costs and unexpected expenses. This provides long-term stability and short-term well-being.
3. Evaluate Debt: Interest rates can have a significant impact on debt conditions. If you have variable-rate loans or lines of credit, explore your options for refinancing or paying down debt to help reduce your risk of higher interest costs.
4. Focus on Goals: Short-term changes to the interest rate are less worrying when you build long-term financial plans and goals built to withstand unpredictable changes to market conditions.

Keep the "What-if Monster" Quiet

When you can't predict changes to the interest rate, it's natural to feel unsettled. However, these changes don't have to impact your long-term financial plans. The key to financial confidence and economic stability is to be prepared. A solid strategy and our team of trusted financial advisors can help you face market uncertainty confidently.

If you worry about the impact of potential rate changes, we are here to help. Let's review your plan and ensure it's built to weather any shifts the Fed might bring. Don't let the "what-if monster" keep you up at night. Contact us today to build a plan that gives you peace of mind in any financial landscape.

Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. 

Group of business people cooperating while analyzing charts on desktop PC at dark office. Focus is on mid adult businessman.

What If AI Challenges Traditional Investment Strategies

Artificial Intelligence (AI) has the world speculating about the future, especially in the realm of investing. AI investment strategy has emerged as a groundbreaking approach, reshaping how portfolios are managed. It has made finance more accessible, analyzing vast amounts of data and offering automated tools where traditional methods once dominated. This includes a whole new generation of investment techniques that leverage the power of AI.

This naturally raises the question: What if AI challenges traditional investment strategies? What will happen to the methods that have guided portfolios for decades?

While this can be an unnerving thought, it's important to understand that no matter how useful AI can be, it has practical limitations. Let's keep the "What If Monster" at bay with a deeper look at AI's impact on investment strategies and how to plan for your financial future.

How AI Investment Strategy is Changing the Investment Landscape

AI is amazing at analyzing large sets of data. It can notice patterns and simplify trends for people who are not financial experts. It has made finance and investment strategies more accessible to the general public and streamlined traditional investment analysis with speed, efficiency, and precision.

AI investment strategy enhances various aspects of investing, including:

• Algorithmic Trading: AI can analyze trends and initiate trades faster than any human trader. This creates the potential for capitalizing on short-term market movements.
• Predictive Analytics: AI can identify trends in massive data inputs. It can help to spot potential opportunities, make trends more visible, and offer useful predictions that were not previously accessible.
• Robo-Advisors: AI robot-advisor platforms offer automated investment advice based on market analysis and financial algorithms. These apps make investing accessible and easy for the average person to understand.
• Risk Management: AI can accurately assess risk based on historical data, helping investors make data-driven decisions.

AI has offered many impressively useful tools, but it hasn't made traditional strategies obsolete.

The Limits of AI Investment Strategy in Financial Planning

Despite its strengths, AI investment strategy has practical limitations. AI tools operate within predefined parameters and lack the ability to interpret complex human behaviors or unexpected global events. Traditional strategies, guided by human insight, offer advantages such as:

• Long-Term Perspective: AI can track short-term trends and potential opportunities very well. However, traditional strategies provide the advantage of insight, patience, and long-term portfolio growth.
• Human Insight: AI can analyze data, but it can't yet interpret human behavior, economic nuance, or geopolitical events - or how they can impact the markets.
• Emotional Considerations: AI cannot yet accommodate the deeply personal aspects of investing. It can't adapt to human emotions like risk tolerance, personal goals for the future, or investing priorities because algorithms can't account for these factors.
• Over-Reliance Risk: It's important not to become complacent and over-rely on AI. Markets are not as predictable as algorithms suggest, and the most advanced algorithms can't foresee every variable or disruption.

AI complements traditional strategies, helping investors understand the market and empowering financial professionals to work more efficiently. But it doesn't replace the wisdom, insight, experience, and adaptability of human investment advisors.

Balancing Innovation with Time-Tested Principles

As AI tools influence investing, the key to success is balancing these new tools with comprehensive traditional strategies. Staying grounded in principles like diversification, asset allocation, and risk management will prepare your portfolio for the long term. Blending innovative tools with established methods will guide you toward a resilient profile that adapts to change and aligns with your investment goals.

Final Thoughts: Embracing the Future of Investing

AI makes us all ask, "What If?" but change isn't as disruptive as many imagine. AI is not challenging traditional investment strategies: it is enhancing them. AI provides a useful toolkit for analyzing and summarizing data. It can identify trends, make investments easier to understand, and streamline short-term investment strategies. However, each algorithm has a specific purpose.

AI is an opportunity to enhance your investment rather than a threat to your foundation. By staying informed, working with trusted advisors, and carefully testing whether each AI tool works for you, you can become a confident investor in an evolving economic landscape.

To learn more about how AI can influence your portfolio or enhance your investment strategy, contact us today. We'll help you navigate the balance between traditional and modern approaches to ensure your financial plan is future-ready.

Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. 

Alternative Education Options: Beyond Traditional Paths to Success

College is the start of a new and rewarding life chapter. For many children, getting into their dream school is a top priority. But the waiting period for an acceptance letter can be daunting. Through this informative blog, we will discuss some alternative education options.

Many parents and children worry whether the dream school will become a reality. While waiting for an acceptance decision is not ideal, it's the perfect time to explore the many viable alternative college paths that lead to a successful future. To help you and your child prepare, we're looking at additional educational paths to explore.

Choosing Between Public and Private Universities

We would like to thoroughly suggest choosing between public and private universities. Public and private universities offer an excellent academic path for students. Here is an overview of what each type of university provides:

Public Universities

A public university is a type of university owned by the state or receives a large amount of funding from the government. In a public university, the state defines the curriculum, resulting in a more standardized system.

Benefits

There are several benefits of attending a public university. For starters, these universities generally have lower tuition compared to private ones. Additionally, if your child attends a public university in the same state, they may be eligible for in-state tuition.

Another benefit of attending a public university is that these schools tend to be larger than private universities. This means that students will have access to more classes. A public university also has a broader selection of programs and majors, making finding an area of interest easier.

Private Universities

A private university is an institution not owned, operated, or funded by the government. To ensure the continued operation of a private university, it receives funding from tuition, donations, and endowments.

Benefits

Attending a private university offers many benefits. To begin with, students have access to more specialized programs. A private university may bridge the gap if your child has a unique interest.

Another benefit of a private university is the flexibility surrounding the curriculum. Since the government doesn't regulate private universities, there is more freedom to make decisions about curriculum, admissions, and academic offerings.

Students will also find that private universities have a strong alumni network, which is beneficial in career paths that require networking.

Alternative Education Options

Receiving education isn't a one-size-fits-all situation. There are many alternative education options for students to gain the knowledge they need to succeed. Here are some common paths to consider:

• Online programs: Attending classes online allows students to create their learning schedules and environments, is more affordable, and allows students to learn comfortably.
• Trade school: If traditional schooling isn't the goal, attending trade school allows students to gain specialized skills and hands-on experience in a particular field.
• Gap years: Some students wait a year before attending a college or university. This allows students an opportunity to explore career interests and create space for personal growth.

Funding Education With Financing Options

Knowing how to fund education is essential when planning. Luckily, many financing options are available to ensure your child receives the education they need. Some financing options include:

Federal Financial Aid and FAFSA

By completing the FAFSA application, your child will open the door to many financing opportunities, such as:

• Pell Grants: Need-based grants that don't require repayment.
• Federal Direct Loans: These loans offer lower interest rates and flexible repayment options.
• Work-Study Programs: These programs provide part-time jobs for students, which helps cover education-related expenses.

Institutional Scholarship and Grants

• Merit-Based Scholarships: Awards based on GPA, test scores, and leadership roles.
• Departmental Scholarships: Program-specific scholarships for fields like STEM or the arts.
• Transfer Scholarships: For community college students, many universities offer financial aid to encourage transfer student

Parent PLUS Loans and Private Loans

There are a few options for families needing additional funds. Parent PLUS loans and private student loans may fill financial gaps. However, these loans typically have higher interest rates and should be used after exploring federal aid options.

Choosing the Best Alternative Education Options

We hope you learned a lot about some of the best alternative education options. Not getting into a top-choice school can feel disappointing, but it's not the end. There are many educational opportunities available for your child to succeed. An alternative path offers unique benefits that can align with academic and financial goals. Remember, success isn't tied to a single institution but to the student's dedication, resilience, and openness to new paths.

At CrossleyShear, we make sending your child to college easier through comprehensive wealth management services. A new life chapter doesn't need to be overwhelming. We're here to help you navigate financially. Contact us today to learn more.