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What Is An Irrevocable Life Insurance Trust And Why Might I Need One?

May 24, 2023 by Abbey Flaum


An irrevocable life insurance trust (an “ILIT”) is a type of trust designed by its creator (the “grantor”) to own a life insurance policy. The grantor names an individual or professional trust company (the “trustee”) to manage the administration of the trust and distribution of the proceeds paid to the trust upon the insured’s death to/for the recipients the grantor selects (the “beneficiaries”).

There are several good reasons that one may establish an ILIT, but perhaps the biggest motivator to voluntarily pay an attorney a few thousand dollars to set up an extra trust is estate tax management. When you die, the value of all your assets (your “estate”) is determined, and if that value exceeds the estate tax exemption level for the year of your death, your estate will pay estate tax on the excess (currently at a 40% rate). At $12.92 Million, the 2023 exemption level is the highest it has ever been however, under current law, that exemption will be approximately halved at the end of 2025, leaving Americans with an exemption of somewhere in the $6.7-$6.8 million range.

Back in the days when there was a $600,000 estate tax exemption, everyone and their grandmother (literally!) had an ILIT to provide estate tax-free liquidity to ultimately pay for estate taxes. Times have certainly changed and many people believe that it doesn’t matter if the exemption is almost $13 million or six-ish, because the value of their estates will never approach the exemption levels. Many will be correct in this thinking; but be mindful of the fact that the value of an estate includes everything; the equity in your home, your retirement, investment, savings, checking and money market account(s), your personal items, your business interests, and so many other assets…including your life insurance. Yes, if you own an insurance policy insuring your life at the time of your death, the death benefit payable from that policy is considered when tallying up the value of your estate for estate tax calculation purposes. That’s a fast way to add one, two, three million or more to the value of your taxable estate. If a properly drawn and funded ILIT owns your life insurance policy at the time of your death, that means you don’t own it, which means that, if certain protocols have been followed in the administration of the ILIT, the life insurance policy is not included in the determination of your taxable estate.

Of course, there are many other good reasons to talk with your attorney about establishing an ILIT other than estate tax management, including:

  • Even if your estate falls under the exemption, your beneficiaries may need cash for maintenance of illiquid assets, to pay income taxes associated with distributions from your IRA, or for other reasons.
  • Your estate may need liquidity to fulfill your specific bequests.
  • You may desire to limit or control how your heirs receive and/or spend life insurance proceeds, particularly if your beneficiaries are young.
  • To manage the life insurance proceeds in a manner to prevent friction that may arise in blended families resulting from remarriages.
  • To ensure that the receipt of benefits from your policy will not result in the disqualification of a beneficiary from the receipt of means-tested government benefits.
  • To provide certain asset/creditor protection for the beneficiaries of your life insurance policy.
  • To allow multiple generations of your family to benefit from the life insurance proceeds without having such proceeds count against their own taxable estates.

You may now be wondering why you would not set up an ILIT. Well, an ILIT is not without its drawbacks. First and foremost, the trust itself is irrevocable. You cannot change it. Yes, there are certain modern mechanisms that allow for modification of irrevocable trusts, but they are not without limitations, and if you are establishing an ILIT, it’s wise to do so with the frame of mind that it will never be changed. Additionally, if you have grand plans for using any of the cash value of your policy during your lifetime, an ILIT is probably not a great plan, as transferring your policy to an ILIT results in the loss of the policy for your personal use. Some people shudder at the necessary procedures for properly administering an ILIT (though, once they get used to it, most realize that it really isn’t a big deal). Of course there’s always the cost of the ILIT to add to the list of cons, as you will have to pay legal fees for the establishment of the trust, and you may need to pay accounting fees for the completion of a gift tax return if gifts are to be made to the trust (gifting is most commonly how premium payments for the life insurance policy are funded).

Generally, most people find that the substantial benefits afforded by the establishment of an ILIT far outweigh the drawbacks. There are precise rules to follow and important timing concerns relating to the establishment and funding of an ILIT, so the time to talk with your professional advisors about whether you need an ILIT and why is now.

If you have any questions or would like to discuss further, please reach out to your client service team, or call 404.264.1400. You can also visit us on the web at HomrichBerg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

The Power Of Attorney; Managing Life’s Business When You Cannot

May 24, 2023 by Abbey Flaum

Whether it’s paying bills, directing investment purchases and sales, closing on real estate transactions, applying for loans, or something else, we all make a hundred decisions and take actions relating to the business of living every day; but what if you cannot make those decisions, sign closing documents or communicate with your investment advisor? What if you need to leave the U.S. for an extended period of time, go in for emergency surgery or you are in an accident? A power of attorney may prove indispensable.

A power of attorney is a legal document in which you, the “principal,” name another person, your “attorney-in-fact,” to act on your behalf to handle life’s business for you. This document may be immediately effective and either terminate in the event of your incapacity or remain effective in the event you become incapacitated. In some states, you may choose to make the power of attorney effective only in the event you are mentally unable to manage your affairs yourself. The power of attorney may be broad, enabling your attorney-in-fact to effectively step into your shoes for all matters you would typically handle on your own, or it may be limited in scope and/or in duration, allowing you to appoint an individual to handle matters during a particular timeframe (i.e., closing on the purchase of a real estate transaction). Importantly, your power of attorney becomes void upon your death, at which point the only people with authority to act on behalf of your assets will be the personal representatives or trustees you have named in your will and/or trust(s).

Your chosen attorney-in-fact will have a legal, fiduciary obligation to act in your best interest, but selecting an attorney-in-fact to act on your behalf may nevertheless be tricky. You do not need to name a lawyer, CPA, or banker; instead, you should select someone who has a good head on his or her shoulders, who you trust implicitly, and who you believe would act similarly to the way you would if you were handling financial matters yourself. If you are inclined to name more than one person to serve as your attorney-in-fact (i.e., two adult children), be sure to consider whether there is potential for conflict and/or impasse that may arise by doing so. Think also about the potential for friction that may arise if, for example, you name a second spouse as your attorney-in-fact when you have adult children from a prior relationship; you don’t want to put anyone in a precarious position with your family if you may avoid doing so. If you are lucky enough to have several trusted people in your life, consider naming them to act in succession, in case your first chosen attorney-in-fact becomes unable or unwilling to serve.

What happens if you do not have a power of attorney and you become mentally unable to manage your own financial affairs? Without a power of attorney, your family may need to initiate conservatorship proceedings in court and ask the court to select someone to manage your business for you. Not only may conservatorship proceedings be time-consuming, expensive, and frustrating, but they may result in the appointment of an individual to act on your behalf that you would not otherwise approve of.

About half of the United States have power of attorney forms that are available free online; however, understanding the intricacies of all the choices available to you in a power of attorney may seem like an insurmountable task.

A qualified estate planning attorney will understand the importance of a power of attorney in your overall estate plan and can guide you through the establishment of a power of attorney and the selection of the right attorney-in-fact, with appropriate limitations and powers for the correct span of time. Don’t become so busy living life that you overlook the importance of planning for the management of life’s business when you cannot.

To learn more about a power of attorney or review your overall estate plan, please call 404.264.1400 or visit us at www.homrichberg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Graduating To…

May 24, 2023 by Tana Gildea

For many, May is the season of graduations. It’s so busy, so exciting and sad and involved. There are activities and tasks and parties. There are pictures and gowns and diplomas. It is a whirlwind of action, and everybody talks about “graduating from” – from high school, from college, from grad school. It’s funny that we don’t talk about what people are graduating “to” – to the next level in school, to a job, to “real life.” It’s there in the background, but at graduation time, we are looking backward and not forward.

So, what is your graduate (or you) graduating to this year? Is he or she graduating to a new level of responsibility with his or her money? Is he or she graduating from being dependent to being independent financially? Are you looking to graduate to new levels of accountability to your own goals and dreams now that your child is on to the next level? It’s helpful to take this time of the year and see how you can be very mindful as you help your kids graduate to a new financial level.

For grade school kids, perhaps you set up a weekly allowance and tell them that’s all they get – treats, activities, things that they want must all come from that one pot. It will be interesting to see how each child manages their pot of money. The older they are, the more they can be responsible for and the longer the time between “pay days.” Can you add some “big jobs” with bigger “pay” so that they can see how work above and beyond the norm can pay off? Do you dock the pay for shoddy work to help them learn the value of a job well done? Do you want to establish some rules for giving and saving before spending so that they get a taste of real life?

For middle school kids, perhaps they need to earn their pot of money – bigger jobs equal bigger pay. Initiative and creativity result in bigger payouts. This is a time when kids can be babysitters, pet sitters, or provide some basic yard work around the neighborhood. What is the rule about giving, saving, and spending when they earn their own money? Do they need to start putting some dollars away for activities in high school or college? Can they oversee their clothing budget for the coming school year?

For high school kids, it may be an opportunity for a job. For anyone under 16, those jobs need to be local but for those over 16, hit the fast-food places and find a way to make some money. What have you discussed about saving some of those earnings for college? Now is the time to set expectations. It can be difficult if kids have very involved activities like sports or music that take a lot of time so employers who are used to working around sports practices may be the way to go.

As you plan a vacation this summer, can you involve the kids in allocating the budget? This is a great way to discuss the fact that the vacation fund is not infinite, choices and tradeoffs must be made, and each person’s wishes should be considered. It is great to let the kids see and discuss the differences in cost and quality between a “Ritz” experience and a “Super 8” experience. Even if you can afford the Ritz, it may be interesting to see if the kids would choose a Marriott experience and use the excess funds for something else. You can use this same approach with camps and other activities. Discussing limits and money choices will help them in the future when they must make such decisions on their own.

You can also use this time to help them track their spending, monitor how the family is doing with the vacation budget, and see how quickly smaller costs (gas, snacks, and meals) add up! It never seems like you have spent much when it is a few bucks at a time, but we do a lot of “small buck” spending.

Regardless of how they respond, how thoughtful they are or not, this is a time to allow for mistakes and missteps. This is a time to let go of judgments and what you think is the best way to handle it, and let your kids try, and do, and fail, and figure things out. We want them to make the mistakes with $5 before they start dealing with $500. We want the natural consequences to play out, so they see that sometimes we make a choice we regret, and the best thing to do is learn so that you don’t do it next time. As a parent, I was too quick to “save” my kids from their errors and smooth over the regrets, and I think that was a mistake. The school of hard knocks is an excellent teacher, and right now, the “knocks” are not as painful as they will be down the road!

We want to help them see how great saving can be because you don’t know what fun and interesting opportunities are around the corner so tucking away some money is a smart thing to do. Perhaps in the vacation planning, you can “set aside” funds to account for an emergency or for an unexpected adventure that you didn’t plan for. This helps them learn that you can’t plan for everything, but you can prepare for the unexpected.

For college kids, now is the time to talk about managing money, having a spending plan, and setting up a savings strategy. If the student is working or interning, lessons about saving a percentage of every paycheck are very important.

Certainly, you want them to start getting in tune with how much “bills” cost – cell phone, car insurance, health insurance, etc. These not-very-fun purchases will soon be part of their everyday lives – are they getting ready? Are you setting the expectation and timeline for those bills to come their way after graduation? Do they have a checking and savings account and understand the difference? Can they monitor their balance, plan out for expenses between now and the next paycheck? Allocate money to savings and learn the discipline to say “no” to pulling it out of savings on a whim? These are important skills for the financially independent.

And for the parents, are you planning, saving for it, and taking baby steps to reach whatever you want to graduate to? Part of the reward for getting your kids to independence is the freedom (and extra money) available to move you to your own dreams. It is so easy to get caught up in the kids that we lose sight of our own aspirations and desires. Perhaps in this season, you can dust them off and get excited about them again.

Amid all the excitement about graduating from, take a little time to focus your kids on what they are graduating to in the coming months. Summer is a slower time for most so seize this time and start focusing them on graduating to good money habits.

If you or your graduate are interested in going deeper, join me for a free webinar on June 14th from 12:00 p.m. – 1:00 p.m. ET – Starting Your Financial Journey on the Right Foot. You can CLICK HERE to register. If you’d like to participate but have a conflict, register anyway as all registrants will receive the recording and the resources after the event. Here’s to graduating to the next adventure!

To learn more or get help with good money habits to share with your kids, please email me at gildea@homrichberg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Happy 5.29 Day!

May 24, 2023 by Tana Gildea

May 29th is officially National 529 Day or 529 College Savings Day. Most folks have heard about 529 savings plans and perhaps know the basics of these plans, so in honor of the day, we thought we’d share a few of the things that we love about 529 accounts.

They are easy! It is so easy to:

  • Set up an account – online or with paper. You do need the Social Security number of the beneficiary, so all of you new parents and grandparents will have to wait to get that information before starting to click.
  • Change your investment options. Keep in mind the “age-based” or newly named “enrollment age” options, as those allocations change automatically as the account beneficiary gets older. You don’t have to think much after that first set-up “click.”
    • Keep in mind if you do want to make a change, the IRS rules only allow two per calendar year unless you are changing the beneficiary.
  • Make contributions. It is easy to link your bank account to your 529 account so that you can set up periodic contributions to automate the process or create one-time contributions when you have a “windfall” month.
    • Get rewards points that link to your 529 account. uPromise and similar programs have online shopping rewards that earn cash back to your 529 account and allow you to invite family members to save their points as well.
      • Savingforcollege.com has links to credit cards that offer you cash back points to your 529 account as well. Be sure you look at fees and the details of the offers.

They are flexible!

  • If you move to a new state, you can open a new account in that state, use the old one, or roll the old account into the new one.
    • You can use the account for colleges in any state.
    • Remember, rollovers are only allowed once per year so keep that in mind.
    • If you received a state tax deduction in the original state, talk to your CPA before processing a rollover as there can be state “claw backs” for those tax benefits.
  • You can change the beneficiary on the account to another qualified family member. This includes making the account owner the beneficiary.
  • You can make the beneficiary the account owner, potentially allowing for withdrawals of non-qualified funds at a lower tax rate.
  • You can take a distribution that is not subject to penalties in the amount of the benefit received if the beneficiary gets a scholarship, goes to a military academy, or for the expenses used for federal education tax credits (as well as a few other situations).
    • Remember, you will pay income taxes on the earnings. Your contributions are not subject to tax.
  • You can use the funds for any eligible institution which includes trade schools and apprenticeship programs.
  • You can use the funds for qualified expenses (limits shown are as of 2023).
    • $10,000 per year can be used for qualified K-12 expenses.$10,000 can be used for student loan payments (lifetime max.)
    • $10,000 can be used for student loan payments (lifetime max.)
    • Amounts up to the cost of attendance can be used for higher education.
      • Remember, if you qualify for education tax credits, you cannot consider those same dollars as qualified expenses for withdrawals from the 529.
      • This applies to graduate school costs as well as undergraduate.
  • You can use the funds for Roth IRA contributions starting in 2024.
    • The source 529 account must have been established for 15 years.
    • The normal Roth contribution limits apply (the lesser of earned income or the IRS maximum).
    • This is currently limited to $35,000 over the beneficiary’s lifetime.

They can save you taxes! This is the one most people think about and it’s a big one.

  • None of the investment earnings within the plan will be taxed unless you take a nonqualified distribution.
    • If you start saving early, this could be a full 18 years of earnings and investment growth before the first dollar is spent for college.
  • Many states provide state tax benefits for contributions although there are generally limits.
    • Review the rules for your state plan or talk with your CPA about whether this is helpful for you.

They get people saving!

Any dollars saved are better than none and putting the funds in the 529 account helps you stay focused on the long-term goal. A few dollars per paycheck adds up over time, and if you add in some rewards plan dollars, and some tax dollars saved, it can be a real help come college time.

As always, you need to consider your own financial goals and priorities, discuss your situation with your advisors, and look at the totality of your situation before making decisions as there are always tradeoffs and drawbacks.

As another school year draws to a close, we want to applaud the kids on all of their efforts this school year, give a huge high-five to the teachers everywhere who give so much of themselves to their students, thank the parents for their support of schools and activities, and wish the best to the graduates who are at the end of one road and ready to start the next journey. Remember, it’s always a good time to save for your goals, whatever they may be and however you choose to do it!

If you have any questions about 529 plans or would like to discuss further, please reach out to your client service team, or call 404.264.1400. You can also visit us on the web at HomrichBerg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Mother’s Money Matters

May 16, 2023 by Tana Gildea

As I was thinking about being a mom and all the ways that moms care for their children, I couldn’t help but think of the financial impact of moms. The traditional mother role was the nurturing and physical care of the kids while dad was out hunting and gathering to provide food, clothing, and shelter. We have certainly come a long way from those drag-home-the-kill days for both men and women. Moms are now a big part of the workforce and can be major contributors to the household income, while still managing the household. According to Motherly’s 2022 State of Motherhood Survey Report, “47% of moms surveyed in 2022 contribute more than half of the household income. In 2018, 37% of moms were contributing half or more to their household income.” It also stated, “Today, almost half (48%) are the family financial planner, meaning moms pay all the bills and manage the household finances.”1

For every mom, working outside the home or not:

  • Do you have a current will, valid in your state of residence, which names a guardian for your children in the event of your death? Even if their dad is still living and you are still married to him, you should name him as the guardian and provide a successor guardian in case you were both involved in a common accident.
    • Does your spouse have a will? Do you know where it is? Do you know what it says?

Do you have financial and health care powers of attorney so that someone could step in should you be incapacitated? This is normally part of the estate documents package. If you have them, review the information to make sure it is still complying with your wishes and the named agents are appropriate.

  • Do you have life insurance on yourself which would pay off the family’s debt, fund college for your kids, and provide your spouse with money to pay for help in the event of your death? You should at least be able to provide a year or two of extra money for childcare while your spouse gets back on his feet. Of course, if you are providing a large part of the financial support for the family, you will want to replace your income as well. Talk to a financial planner or insurance agent for the right amount for your situation, age, and budget.
    • There are good life insurance calculators online that you can use to get any idea of how much is enough. Term insurance is not very expensive for nonsmokers, so I urge you to investigate this option while you are healthy.
    • If you have had life insurance for a while now, do you know the expiration date of the term? Twenty years can go by fast so make sure you know when those expire so you can plan ahead to replace the policy if needed.
  • Does your spouse have life insurance, and if so, do you know with which company, how much, and how you would access it in the event of his death? This is not a fun topic, but it is important for you to be in the know.
    • Be sure you know the policy date and the term so you can track the expiration and get new policies if needed.
  • Do you know where the money is? All the accounts, passwords, and balances?
    • With all the two factor authenticators in use, can you access his email or phone to “get the code?”
  • Do all the working adults have disability insurance? Anyone contributing money to the support of the household should have disability insurance in case of illness, accident, or other incapacity.
  • Do you have a stash of cash at home, locked up, that you could access if needed in an emergency?
    • Consider getting a safe, chaining it in an out-of-sight place and putting all your important documents, cash, and passwords in it. Wills, passports, social security cards, life insurance policies and any other important documents should be in there. The office supply stores have inexpensive safes that are small and have a built-in chain.
  • If you are in your late fifties/early sixties, do you have long-term care insurance which would help cover the cost of your care if you had to go into assisted living or a nursing home? This is a huge help to your children when you get to the age of needing such assistance.

If there has been a divorce, have you updated the beneficiaries on all life insurance and employer benefit plans? Sometimes that is missed in the turmoil of divorce. You always need to update estate documents accordingly.

None of these things are fun or seem nurturing or contributing to the care and well-being of your children, but they all are critical aspects of the modern-day protection of our children. As a Mother’s Day present to your kids, take action on one or two of these items this week so that you can know that you have done everything possible to protect and provide for your kids.

To your financial (and parental) success!

To learn more or get help planning your financial goals, please email me at gildea@homrichberg.com.

Download this article here.

1 Source: https://www.mother.ly/news/2022-state-of-motherhood-survey/#in-the-past-5-years-mothers-have-proven-their-power-heres-whats-changed

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Organizing Your Financial Records

May 1, 2023 by Isaac Bradley

Spring is traditionally a time for cleaning, decluttering, and organizing our homes. It is also a time when many of us are compiling the necessary documents to file our tax returns. This makes spring a great time to update and organize your financial records and other important documents.

Organizing your financial records makes your life easier and, perhaps more importantly, it makes things easier for those you love should something happen to you. Below are some thoughts and suggestions regarding what documents you should save, where you should save these documents, and when you should update and dispose of these documents.

What documents should you save?

Below is a list of documents that should be saved which includes permanent records that provide proof of identity and relationship, property and business records that provide proof of ownership and rights, and planning documents required to execute your plan upon death or incapacity. There may be additional documents that should be saved depending on your individual situation.

In addition to the documents listed below you should also keep any documents related to a legal claim, billing dispute, or similar matter until it is resolved. This list focuses on documents that are more difficult to obtain. You may decide to keep your most recent annual account statements as well, but these are easily obtained so you generally do not need to keep copies once you have reviewed them.

Permanent records: You should keep original hard copies of the following permanent records indefinitely.

  • Passport, driver’s license, or other ID card
  • Social Security card
  • Certificate of citizenship or other immigration documents
  • Birth/adoption certificates (and any custody or support agreements while in effect)
  • Marriage/divorce certificates (and any marital or separation agreements while in effect)

Property records: You should keep the following ownership and insurance records for as long as you own the underlying assets.

  • Real property deeds with any title insurance policies and loan documents (until paid off)
  • Vehicle titles with any loan documents (until paid off)
  • Property and casualty insurance policies (updated annually)
  • Promissory notes or negotiable instruments held by you

Business records: You should keep the following business records for as long as you have an ownership interest in a closely held business or a personal right or obligation under a business agreement.

  • Partnership/operating agreements showing ownership percentages
  • Stock certificates or evidence of uncertificated shares with any related shareholder agreements
  • Rental agreements
  • Employment agreements

Planning documents: You should keep and update the following planning and tax related documents.

  • Personal balance sheet including digital assets/accounts
  • Wills, trust agreements, powers of attorney, and medical directives
  • Life insurance and annuity policies
  • Retirement and pension plan records
  • Income tax returns and supporting documents

Where should you save these documents?

The documents listed above should be accessible but also protected from theft and damage. Permanent records providing proof of identity and certain planning documents including your power of attorney and medical directive should be kept where they are accessible. These documents should be stored somewhere secure, such as a filing cabinet or home safe (preferably one that is fireproof and waterproof but small enough to take with you in an emergency).

Property records and business records generally do not need to be immediately accessible so another option for these documents is a safe deposit box. Your original will, power of attorney, and medical directive should not be kept in a safe deposit box because if something happens to you the documents may be temporarily inaccessible. If you decide to have a safe deposit box, then consider having another person on the lease so they can access the box if something happens to you.

Maintaining an electronic copy of important documents can also be a good idea. However, you should be careful how these documents are stored. Whether you decide to store these documents on your computer, an external drive, or cloud-based storage, it is important that the information be stored securely with password protection to prevent fraud or identity theft. Keeping these documents in your email or an unsecured folder is not a good idea.

An important consideration in storing your documents is making sure the appropriate people can access them. The individuals named in your planning documents should know where the documents are located and be able to access them when needed. It is also important that someone be able to access your digital assets and online accounts if something happens to you. However, it can be difficult to maintain an up-to-date list of passwords and more importantly it is not a good idea from a security standpoint. Password managers (such as LastPass) are the best way to store passwords securely, but you will need to make sure someone you trust can access the master password.

When should you update and dispose of documents?

An important consideration in storing your documents is making sure the appropriate people can access them. The individuals named in your planning documents should know where the documents are located and be able to access them when needed. It is also important that someone be able to access your digital assets and online accounts if something happens to you. However, it can be difficult to maintain an up-to-date list of passwords and more importantly it is not a good idea from a security standpoint. Password managers (such as LastPass) are the best way to store passwords securely, but you will need to make sure someone you trust can access the master password.

A personal balance sheet is the first planning document listed because it in many ways drives planning. This can help to identify planning opportunities, but more importantly it makes things much easier for your loved ones upon your death or incapacity. You should update and replace your balance sheet at least annually along with an updated list of important digital assets and accounts that your fiduciaries and beneficiaries should be aware of.

Your other estate planning documents should be updated and replaced as necessary based on your changing objectives and financial situation. You should save your estate planning documents until you sign updated documents that replace the existing ones. Once you have new documents in place it is a good idea to dispose of the old documents to avoid confusion.

Income tax returns and supporting documents need to be kept for a minimum of three years, and baring your filing a fraudulent return, you’re not filing a return, or the IRS losing your return, the maximum time you need to save tax returns is seven years. However, the IRS has lost tax returns in the past, so some CPAs suggest keeping tax returns indefinitely. If you have a health savings account (HSA) then it is also a good idea to save medical bill receipts which can be used to withdraw HSA funds tax free.

When disposing of documents that have been updated or are no longer in effect you should be sure to shred documents with personal information, especially if the documents contain your social security number, account numbers, or password information.


If you have any questions or would like to discuss further, please reach out to your client service team or call 404.264.1400.    

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg

Filed Under: HB Updates

Building Your Financial Fortress

April 28, 2023 by Tana Gildea

 A fortress. That word conjures thoughts of a castle, knights in shining armor, and horses galloping to either conquer or defend the fortress. Or maybe your imagination goes to military campaigns and the forts built to hold ground and provide security for troops. Regardless, the image is an imposing one, and the feeling is of safety, longevity, and strength.

Building your financial fortress is all about creating that feeling of safety, security, and refuge against the trials and tribulations that life can bring. It is not about pursuing the material, the shiny, the things that make up the Insta posts that catch our attention and awaken our little green monster. Building the fortress is the ability to keep you and your family safe in an uncertain world. It is about addressing and planning for some of the worst things as we ultimately pursue some of the best. The fortress is the foundation upon which to build a solid, stable life.

As we look at the elements of a financial fortress, saving and creating available cash tops the list of providing security in the face of illness, misfortune, and calamities from the mundane flat tire to the more impactful tree falling through the roof. Building up your “emergency savings” is about as exciting as flossing your teeth so let’s reframe that to adding bricks to the fortress or even adding soldiers to guard the door. Every dollar that you save and accumulate is another brick in the fortress wall, making it stronger. It is not about giving up something; it is about gaining security and freedom from worry should life throw a curveball.

Regardless of how much you accumulate on the cash side of the house, the fortress needs more protection than our own dollars can provide and that comes in the form of insurance. As you build your financial fortress, take a long, hard look at your property and casualty (i.e., homeowners and auto) insurance.

  • What is the company?
  • What is covered and what is excluded?
  • How much are your deductibles? Do you have that saved?
  • Is your coverage appropriate and adequate?
  • Do you know how to file a claim if you had something happen?
  • Have you talked to your agent within the past year or two to update him/her about changes?
  • Does the liability coverage at least equal your net worth?

If you have recently graduated from college and moved into a new apartment, have you updated your renter’s insurance? That insurance covers your belongings as well as your liability for things like fire or flood in the dwelling. If you live in an apartment, their insurance only covers the apartment itself not you and your things. Consider your coverage limits as you start to acquire more expensive things. You want to make sure the limits would allow you to place everything in the event of a major catastrophe.

Does someone depend on your paycheck for rent, mortgage, or other support? If so, do you have some life insurance for them to replace your income if the worst happened? Have you thought about how long that person could manage on his or her own given the life insurance you have? When you are young, life insurance is inexpensive, and most people need it for a fairly long time, so it may be time to look at having your own policy beyond what is available at work.

And speaking of the worst, when you start a new job, be sure you have disability insurance which replaces your income should you be unable to work due to illness or injury. You’ll need both short-term and long-term.

Part of your fortress building should include your “speed dial” list. Who are you gonna call (not Ghost-Busters) when something real life crazy happens?

  • Speaking of insurance – do you have the company and/or agent’s number on hand?
  • Roadside Assistance – you may have this service as part of your car insurance. Do you know how to contact them?
  • If you own a home, I’d recommend having the name and number of a good plumber at the ready. Water and other plumbing things are absolutely awful and always seem to come up at very inopportune times!
  • How about contact info for your roommate’s or significant other’s family, employer, and best friend? When bad things happen, you need to reach these folks.
  • Do you have a tax professional who can help if that IRS notice shows up or you have a more complex tax situation?
  • Do you know an attorney who could give you guidance if something came up? There are a lot of specialties within the attorney realm but having at least one person to call can make a huge difference in a difficult situation.
  • Who else should be on your “speed dial” list?

Other elements of your fortress must include your digital safety and security. Securing and protecting your identity, credit, and reputation in a digital world are critical. Yes, it is also annoying that we must spend time, energy, and money to keep the cyber-villains out of the fortress, but that’s the downside of electronic convenience.

  • How do you monitor your credit?
    • Monitoring services can be great but only if you review their alerts and respond if something is amiss.
    • If you don’t use a service, make sure you are watching your credit score and pulling your credit report periodically to review activity, report issues, and resolve problems.
  • Digital safety is an ever-present issue to keep top-of-mind. The click bait is getting more and more tempting and even though we all do know that we didn’t inherit from some long-lost foreign emperor, sometimes you just want to click anyway. In those moments of being tired, distracted, or just not paying attention, put down the mouse, and lock the phone. Viruses and bad links abound. Speaking of, keep that anti-virus software up-to-date and run those scans.
  • Freezing your credit is a good way to “slam the door shut” but be sure that you keep all the “thawing” instructions in a safe place as you’ll need them from time-to-time.
  • Speaking of a safe, do you have a small safe to keep your passport, some cash, credit cards that you don’t want to use, and key passwords in? It’s probably worth a few bucks at the office supply store to have one for yourself.
  • Personal activity, posts, pictures, and memes are forever in the land of bits and bytes so be sure that you use the “what if this was printed on the front page” test before you post that sarcastic comment, that crazy picture at that recent party, or that perfect comeback to that jerk. Your reputation is at stake.

Personal Financial Capacity is another element of your financial fortress that takes some thought and consideration. Part of your capacity is liquid assets, like cash in checking and savings accounts. Part of your capacity is access to credit in various forms. Having access to credit can be in the form of multiple credit cards which have available credit, a great credit score, and other credit options. This capacity beyond your own resources expands your ability to fight off the dragon at the fortress door. Manage your use of and access to credit so that in trying times, you have it.

I often recommend that those homeowners who have sufficient equity in their homes look at a home equity line of credit. Get it when you can and don’t use it! A home equity line of credit (HELOC) provides more capacity because in down times, it will be hard, if not impossible, to get. Of course, one must consider the cost of securing additional credit as loans and credit cards can have fees.

As you move beyond the basic protections for today, reducing debt will further fortify your fortress. Although having credit capacity is a great thing, using that capacity should be undertaken very thoughtfully. Debt is necessary but costly, especially now that interest rates have increased. Use debt wisely and develop a plan to pay off consumer debt quickly. It is always a burden, and the interest you pay adds bricks to someone else’s fortress rather than yours!

Life is always a balance between creating safety and security and living boldly, seizing the moment, and enjoying life now. As you consider the status of your financial fortress, think about how it would feel to reinforce your fortress and add some additional bricks versus spending on other discretionary items that are here today, gone tomorrow like another meal out or a few more items thrown in the basket at the store. We always have that choice to build up the reserves or spend them down. I’ve found that I rarely regret having a few more bricks in the wall, but I’ve had plenty of regrets about mindlessly tossing them to others.

If you would like to go a bit deeper into the topic of Building Your Financial Fortress, join me for a free webinar on May 3rd 12:00 p.m. – 1:00 p.m. ET. Even if you can’t attend live, registrants will receive the links to the video and presentation. You can CLICK HERE to register.

To learn more or get help building your financial fortress, please email me at gildea@homrichberg.com.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

2023 Tax Guide

April 12, 2023 by Isaac Bradley

Each year the IRS makes inflation adjustments to more than 60 tax provisions. These adjustments are to ensure that an increase in a taxpayer’s income taxes is the result of an increase in the taxpayer’s real income and not simply due to inflation (referred to as “bracket creep”). This guide provides a summary of the key tax updates for 2023 (which generally apply to tax returns filed in 2024).

Health Savings Account (HSA) and Flexible Spending Account (FSA) Contributions. HSA contribution limits for 2023 are $3,850 for individual coverage and $7,750 for family coverage. Individuals age 55 and older can contribute an additional $1,000 as a catch-up contribution. The FSA contribution limit for 2023 is $3,050. HSA and FSA contributions are typically pre-tax payroll deductions, but HSA contributions may also be taken as an above-the-line deduction (i.e., taken to arrive at adjusted gross income), if not already deducted from payroll. You may be able to contribute to both an HSA and a Limited Purpose FSA to pay for expenses not covered by your health plan, such as dental and vision care.

In addition to the contribution limits, HSAs and FSAs have some other key differences. To contribute to an HSA, you must be enrolled in a qualifying high-deductible health plan (HDHP) while FSAs are available to anyone whose employer offers one. HSA contributions can be made until your tax filing deadline for the year (i.e., April of the following year) while you must elect how much to contribute to an FSA before the start of the year (i.e., December or the prior year). HSA funds can be carried forward and invested while FSA funds must generally be spent during the year contributed or shortly thereafter. For 2023, FSA plans may allow up to $610 of unused funds to be rolled over into the following year. FSA funds can only be used for qualified medical expenses. HSA funds can be used for other purposes but must be used for qualified medical expenses to avoid tax and an additional 20% penalty if withdrawn prior to age 65. The chart below outlines the differences between HSAs and FSAs.

HSAs / FSAs Comparison:

 HSAFSA
Eligibility requirementsEnrolled in HDHPOffered by employer
Contribution limits 2023$3,850 single or $7,750 for family (additional $1,000 if age 55+)$3,050
Contribution tax treatmentPre-tax (or above-the-line deduction)Pre-tax
Contribution deadlineTax filing deadline for plan yearStart of plan year
Use of fundsAny purpose (subject to tax and potential 20% penalty if not for qualified medical expenses)Limited to qualified medical expenses
Deadline to spend fundsNoneDuring year of contribution (or shortly thereafter if plan allows)
Investment optionYes (potentially tax-free)No
Retirement optionYes (treated like a traditional 401(k) after age 65)No

Retirement Plan Contributions. Retirement plan contribution limits and income thresholds have been increased for 2023 except for IRA the catch-up contribution which have never been adjusted for inflation but will be beginning in 2024. As with HSAs and FSAs, retirement plan contributions are typically either pre-tax payroll deductions or above-the-line deductions (i.e., taken to arrive at adjusted gross income). The 2023 contribution limits and income thresholds as well as the deadlines to establish and contribute are listed in the tables below.

Retirement Plan Contribution Limits:

 Individual (Employee): Contribution Limit 2023Employer: Contribution Limit 2023
IRA-Based:
IRACompensation up to $6,500 ($7,500 if age 50+)$0
SEP IRAPlan may permit traditional IRA contributions subject to IRA contribution limits25% of compensation up to $66,000
SIMPLE IRACompensation up to $15,500 ($19,000 if age 50+)Limited to matching contributions on up to 3% of compensation or nonelective contributions equal to 2% of up to $330,000 compensation for each eligible employee
 Individual (Employee): Contribution Limit 2023Employer: Contribution Limit 2023
Defined Contribution:
SIMPLE 401(k)Compensation up to $15,500 ($19,000 if age 50+)Same as for SIMPLE IRA
Safe-Harbor 401(k)Compensation up to $22,500 ($30,000 if age 50+)Compensation up to $66,000 (for both employer and employee contributions with minimum requirement for employer)
401(k)Compensation up to $22,500 ($30,000 if age 50+)Compensation up to $66,000 (for both employer and employee contributions)
Solo 401(k)Compensation up to $22,500 ($30,000 if age 50+)25% of compensation up to $66,000 (for both employer and employee contributions)
Profit Sharing$0Compensation up to $66,000 (for both employer and employee contributions)
Defined Benefit:
 $0Compensation up to $265,000

Contribution limits for Roth designated plans are the same as above, provided Roth IRA eligibility begins to phase out when MAGI exceeds $218,000 married filing jointly or $138,000 single.

The employer and employee designations can be confusing. Self-employed business owners are essentially both the employer and employee. However, there can be a distinction for purposes of retirement contributions. A business owner with a Solo 401(k) may elect to defer (i.e., contribute as an employee) up to $22,500 of their compensation in 2023 ($30,000 if age 50 or over). The business can then contribute (as the employer) up to 25% of the business owner’s compensation, provided the total employee and employer contributions cannot exceed $66,000 for 2023 ($73,500 if age 50 or over). For single owner businesses earning over $300,000 per year the employee vs. employer contribution distinction doesn’t really matter because the maximum contribution could all come from the business (i.e., the employer) since 25% of $300,000 exceeds the $66,000 contribution limit. However, the distinction can be important for single owner businesses making less than this. For example, if a business were to earn $100,000 in 2023 then the business (i.e., the employer) could only contribute $25,000 (25% of $100,000), but the business owner (i.e., employee) could contribute an additional $22,500 ($30,000 if age 50 or over). This is where the deadlines for establishing and contributing to a plan become important.

Retirement Plan Contribution Deadlines:

 Deadline to Set-UpEmployee: Contribution DeadlineEmployer: Contribution Deadline
IRA-Based:
IRAIndividuals must establish by individual tax filing deadlineIndividual tax filing deadlineN/A
SEP IRAEmployer must establish by employer’s tax filing deadline + extensionIndividual tax filing deadline (if contributions permitted)Employer tax filing deadline + extension
SIMPLE IRAEmployer must establish by October 1stWithin 30 days after the end of the month for which the contributions are to be made (i.e., January 30th of the following year)Employer tax filing deadline + extension
Defined Contribution:
SIMPLE 401(k)Employer must establish by October 1stSame as for SIMPLE IRAEmployer tax filing deadline + extension
Safe-Harbor 401(k)Employer must establish by October 1stDecember 31stEmployer tax filing deadline + extension
401(k)Employer must establish by employer’s tax filing deadline + extensionDecember 31stEmployer tax filing deadline + extension
Solo 401(k)Individual must establish by individual tax filing deadlineIndividual tax filing deadlineEmployer tax filing deadline + extension
Profit SharingEmployer must establish by employer’s tax filing deadline + extensionN/AEmployer tax filing deadline + extension
Defined Benefit:
 Employer must establish by employer’s tax filing deadline + extensionN/AQuarterly installment payments of the required contribution are due 15 days after the end of each quarter

The dates in the above chart are for the plan year unless otherwise noted (i.e., a 2023 SIMPLE plan must be set up by October 31st of 2023). However, the tax filing deadlines are for the year following the plan year (i.e., 2023 individual taxes are due April 2024 and the deadline for setting up and funding a 2023 IRA is April 2024).

Standard Deduction. For 2023 the standard deduction increased to $13,850 for individuals who are single filers and to $27,700 for couples who are married filing jointly (MFJ). Taxpayers age 65 and older are eligible for an additional standard deduction of $1,850 for single filers and $1,500 for each spouse that is age 65 or over for couples MFJ. Taxpayers may elect to take either the standard deduction or itemize deductions from their adjusted gross income (AGI) to arrive at their taxable income.

Income Tax Rates. The ordinary income and capital gain rates are unchanged for 2023, but the income limits for each tax bracket have been increased which reduces the effective tax rate. The 2023 rates and income brackets for single filers and couples MFJ are listed in the tables below.

Ordinary Income Tax Rates:

RateSingleMFJ
10%$0 – $11,000$0 – $22,000
12%$11,000 – $44,725$22,000 – $89,450
22%$44,725 – $95,375$89,450 – $190,750
24%$95,375 – $182,100$190,750 – $364,200
32%$182,100 – $231,250$364,200 – $462,500
35%$231,250 – $578,125$462,500 – $693,750
37%Over $578,125Over $693,750

Long-Term Capital Gain and Qualified Dividend Tax Rates:

RateSingleMFJ
0%$0 – $44,625$0 – $89,250
15%$44,625 – $492,300$89,250 – $553,850
20%Over $492,300Over $553,850

These are marginal tax rates, and each rate applies only to income within its respective bracket. The marginal tax rate is the rate that would apply to the next dollar of income. Alternatively, the effective tax rate (or average tax rate) is a person’s tax as a percentage of income. For example, a couple MFJ with $50,000 of ordinary income would pay 10% on the first $22,000 and 12% on the next $28,000. The couple would owe $5,560 in tax ($22,000 x 10% + $28,000 x 12%). Their marginal tax rate would be 12%, but their effective tax rate would be just over 11% ($5,560 / $50,000).

The tax bracket for long-term capital gains and qualified dividends is determined based on all taxable income. Net long-term capital gains and qualified dividends are “stacked” on top of ordinary income to determine the relevant tax rate. For example, assuming the couple in the prior example had $50,000 of net long-term capital gains in addition to $50,000 of ordinary income, they would pay 0% on the first $39,250 of net long-term capital gains and 15% on the next $10,750 of net long-term capital gains.

Most income that is not tax exempt (i.e., interest on municipal bonds) is taxed as ordinary income unless it is long-term capital gain or qualified dividend income. Gains recognized on the disposition of an asset that has been held for more than a year are generally treated as long-term capital gains. Most dividends are qualified dividends which in general are dividends from shares of domestic and qualified foreign corporations that meet certain minimum holding requirements.

Net Investment Income and Additional Medicare Tax. In addition to the income taxes discussed above, single filers with AGI over $200,000 and couples MFJ with AGI over $250,000 are subject to a 3.8% tax on any net investment income above these thresholds. Net Investment Income includes interest, dividends, capital gains, rents, royalties, and certain other types of passive income. A 0.9% Additional Medicare Tax also applies to any wages exceeding $200,000 for single filers and $250,000 for couples MFJ. A person may be subject to both taxes, but not on the same income. The 0.9% Additional Medicare Tax applies to wages, compensation, and self-employment income over certain thresholds, but it does not apply to Net Investment Income. The tax rates and AGI thresholds for the Net Investment Income Tax and Additional Medicare Tax are not adjusted for inflation and have been unchanged since they went into effect at the beginning of 2013.

Estate and Gift Exemption. As part of the 2017 Tax Cuts and Jobs Act (TCJA), Congress essentially doubled the lifetime estate tax exclusion beginning in 2018. This amount is adjusted for inflation and is $12.92 million per individual in 2023. The annual gift exclusion has also risen to $17,000 per donor/recipient for 2023. Note that the TCJA is scheduled to sunset at the end of 2025 and if Congress does not act the estate tax exemption will essentially be cut in half beginning in 2026.

Tax Provisions not Adjusted for Inflation. This piece mainly covers the key tax provisions that are adjusted for inflation annually. There are other provisions that are not inflation adjusted. The credit amount and income threshold for the child and dependent tax credit and for educational tax credits (Lifetime Learning and the American Opportunity) are not adjusted for inflation.

As you plan around the 2023 tax numbers, it is important to discuss with your financial advisor to determine how they may impact your personal plan.

Download this article here.


If you have any questions or would like to discuss further, please reach out to your client service team or call 404.264.1400.    

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg

Filed Under: HB Updates

Gifting Basics: What Counts As A Gift And Gift Tax Reporting

April 11, 2023 by Abbey Flaum

You helped your son by making the down payment on his new home for him.

You opened a joint account with your daughter so that she may learn about money management while you keep a close eye on her activity.

You loaned money to your brother at a below-market interest rate.

There is nothing to do from a tax reporting perspective, right? Well, no…

First, I would be remiss if I did not mention that there may have been better ways to achieve the specific goals targeted in the above-described scenarios, but the point here is that such scenarios highlight the need to understand gifts and when to file a gift tax return.

You might think you can make gifts to anyone in any amount and not even give a second thought to tax reporting; however, the United States government imposes a limit on the value an individual may transfer without incurring a 40% gift tax, and as of January 1st of this year, that limit (the “exemption”) is $12,920,000. This exemption amount is per donor, not per recipient, and it is for cumulative gifts made during your lifetime. If Congress does not amend the 2017 “Tax Cuts and Jobs Act,” the exemption will be cut to somewhere in the $6-7 million range on December 31st, 2025, so many wealthy individuals are collaborating with their advisors to plan gifts now that consume a majority or all of their exemptions.

In addition, the “freebie gifts,” or gifts that do not consume any of one’s exemption. These include:

Annual Exclusion Gifts: Everyone is allowed to gift the “annual exclusion” amount (currently $17,000/donor/recipient/year) to as many recipients as s/he would like each year.

Gifts to Political Organizations: The gift tax does not apply to a transfer to a political organization (defined in §527(e)(1)) for the use of the organization.

Educational Gifts: Any amounts paid as tuition to an educational organization directly for any individual may be unlimited in value and do not consume one’s gift exemption (I.R.C. 2503(e)(2)(A)).

Gifts to Charities: There is no gift tax applicable to transfers to any civic league or other organizations described in §501(c)(4); any labor, agricultural, or horticultural organization described in §501(c)(5); or any business league or other organization described in §501(c)(6) for the use of such organization, provided that such organization is exempt from tax under §501(a).

Medical Gifts: Any amounts paid directly to a medical care provider for any individual may be unlimited in value and do not consume your gift or estate tax exemptions (I.R.C. 2503(e)(2)(B)). This includes any expense for which one could claim an income tax deduction for medical expenses, including, but not limited to, preventative care, treatment, surgeries, dental and vision care.

Just because a gift uses your exemption does not mean that you do not have to file a gift tax return (Federal Form 709) for the gift in question. In fact, if you read the instructions for the Federal gift tax return, it is far easier to discern who does not need to file the return than who does. The instructions provide that you are not required to file if you made no gifts during the year to your spouse, you did not give more than [$17,000] to any one recipient, and all the gifts you made were of present interests. We could devote an entire article just to what all of this means; long story short, if you made that down payment for your son, opened that joint account for your daughter, loaned your brother those funds at below-market interest, or transferred real or personal property, whether tangible or intangible to anyone, directly or indirectly, you likely made a gift, and you should consult with your CPA about whether you need to file a Federal (and/or state) gift tax return.

For the freebie gifts, your gift tax return reports that you made such gifts to the Internal Revenue Service, and may address the use of a different, complicated tax for which you have a different exemption: the generation skipping transfer tax. For more substantial gifts, your return reports the gifts and explains how much of your exemption(s) you used to make such gifts. This may require the use of valuations and/or appraisals for gifts of real estate, business interests or other assets that do not have a readily determinable market value. The gift tax return is mostly used to simply report gifts to the IRS without any tax due. If you have used all your exemption(s), you might consider making gifts for which gift tax will be owed with your gift tax return, as there may be substantial benefits for your family if you make such gifts now.

Federal gift tax returns, which may not yet be e-filed, are due when your personal income tax return is due – no later than April 15th of the year after your gift was made (when April 15th falls on a weekend or legal holiday, the due date will occur on the next business day). You may request an automatic six-month extension by filing Form 8892, or if you extend your calendar year Federal income tax return, your gift tax return filing deadline will automatically be extended as well.

Download this article here.


If you have any questions or would like to discuss further, please reach out to your client service team, or call 404.264.1400.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Current State Of The Estate And Gift Tax Laws

March 27, 2023 by Abbey Flaum

Now that we are a few months into 2023 with spring break on the mind, many families will inevitably think about what numerous people consider when preparing to board a plane: whether their wills are in good shape. Not only should this question be top of mind, but, as a major tax milestone is now less than two years away, so should the question of how the current federal estate and gift tax laws affect your planning.

Current Federal Gift and Estate Tax Laws

Married United States citizen couples continue to enjoy the ability to gift any amount of value amongst themselves without paying any gift tax. The amount that an individual may transfer to non-spouse beneficiaries (an individual’s “exemption”) is now $12.92 million; total per donor – not per recipient.

This exemption may be used during life for gifts above the annual exclusion (see below for more on this), at death for bequests, or in combination. If you give $2.92 million to your children this year, that leaves $10 million of exemption remaining to make additional gifts or bequests. The exemption will increase slightly in 2024 and 2025 with inflation, and then, if the pertinent schedule established under 2017’s “Tax Cuts and Jobs Act” remains in place, the exemption will effectively be cut in half on December 31, 2025, leaving Americans with an estimated $6.8 million exemption. Currently, for every dollar transferred in excess of one’s exemption to non-spouse recipients, forty cents is paid in the form of gift or estate tax to the United States government (or significantly more if the transfers are to grandchildren and younger generations).

Nearly $13 million, or even $7 million, is very significant, and the estate tax may be no concern of yours. Remember, though, that your “estate” for gift and estate purposes is comprised of all of your assets, including your checking, savings, money market, investment and retirement accounts, the value of your home(s) and other real estate you may own, the death benefit of your life insurance policies, your tangible personal property…everything.

The 2025 decrease to the gift and estate exemptions does not mean that you will owe tax if you give away more than $7 million before 2025, but it does mean that if a $6.8 million exemption will be insufficient to shield your estate from estate taxes at death, now is the time to work with your advisors to explore whether gifting to take advantage of the current laws is right for you, and how.

A Few Gifts to Think About

The “annual exclusion” is a freebie in the gifting world. Anyone may give up to the annual exclusion amount ($17,000 in 2023) to an unlimited amount of individuals (or to certain types of trusts benefiting individuals) each year, without consuming his/her gift exemption.

Other “freebie” gifts include medical and educational gifts. Any amounts paid directly to a medical care provider or educational organization for any individual may be unlimited in value and do not consume your gift or estate tax exemptions.

After exhausting the above-explained, applicable gifts, one may want to consider larger gifts to individuals or to irrevocable trusts for the benefit of certain individuals. Trusts allow you to establish rules for who will be in charge of gifted amounts, how those amounts may be administered and distributed, and who may benefit from the gifted assets. They may also allow for the provision of certain additional tax and asset protection benefits for your beneficiaries.

Your wealth advisors should be able to project reasonable growth of your assets and anticipated cash needs, they may help you to determine if you should be gift planning and how much you can afford to gift, and they should work with your attorney and tax account to properly structure gifts in the best way possible to meet both your personal and tax planning needs.

If you have any questions or would like to discuss further, please reach out to your client service team, or call 404.264.1400.

Download this article here.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed. The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Filed Under: HB Updates

Help Your Kids March Towards Financial Security – Part 2

March 22, 2023 by Tana Gildea

In part 1, we talked about the importance of helping our kids March Toward Financial Security by having conversations about saving and how best to allocate a paycheck – or any money that comes their way.

We want to continue that theme by exploring ideas to help them save and invest on their own. An obvious first step is to open accounts like savings and checking accounts. You can walk into your own bank with your teen and open accounts like we did when we were kids (Anybody remember having a “passbook?” I do!). Some banks allow teens to have their own account in their name prior to age 18; others may require a parent to be a joint account holder. Regardless, I recommend setting up balance alerts or some other method of monitoring because there are likely to be a few “oops” moments as your teen is learning the mechanics of banking, and overdraft fees are not cheap (Although they offer a good teaching moment!).

Currently, there are many online options for teens to open an account from the convenience of a cell phone. Do your research and check ratings and user comments. Sites like NerdWallet and The Balance have ratings for such accounts and a quick online search will lead you to articles and resources to help analyze the options. The important part is to make sure that you help your teenager understand how these accounts work and what tools the bank app has for monitoring and tracking.

There are also companies offering debit cards for kids which have a lot of parental oversight, reporting, and monitoring capabilities. In a time when cash is giving way to electronic commerce, learning how to manage money when it is invisible is more important than ever.

I remember my kids struggled with the difference between an ATM card and a gift card. They had plenty of experience with the mechanics of gift cards with a set balance “on the card” which was used and then tossed. They had a harder time understanding that the ATM was not a “card with a balance” but rather a “key” to access an account at a bank. A lost card doesn’t mean the loss of the funds “on the card” but rather a temporary inconvenience to the access of the account. These abstract concepts take some detailed explanations.

The more interesting part comes in working through the mechanics of depositing paychecks and setting up automatic transfers to savings and investment accounts. What a gift it is to teens to get them primed to have a formula for receiving money:

  • X% to charity (if that’s important to your family),
  • Y% to the emergency savings account, and
  • Z% to long-term investing.
  • Maybe you add a C% for saving for college or a G% for paying for gas each week.

Teaching teens how to allocate their earnings to important goals and priorities sets them up for financial success throughout their lives. They don’t need a job to be introduced to this structure. It is great to set priorities for any money they receive.

This is also an opportunity to teach them about the differences between interest on a savings account and opportunities for dividends and investment growth in an investment account. Savings accounts have low interest rates because the safety of the principal is guaranteed – lower risk, lower reward (interest). Investing carries a risk of loss so must provide greater reward (higher interest rate, dividends, or the opportunity for increases in the value of the investment).

When your teen does have earned income1 (wages from a job), we recommend they open a Roth IRA account. The beauty of a Roth IRA is that the owner can invest those funds, and as long as they follow the Roth rules, they will never be taxed on the returns from those investments (called “unearned” income in tax lingo). Wow – that is a great deal! Interest, dividends, and capital gains over their lifetime build up and are never taxed (under the current tax rules anyway). Unearned “ordinary” income in a non-retirement investment account is subject to tax at “ordinary income” rates which go from 10% to 37%. Gains on investment sales and “qualified dividends” are subject to capital gains rates which are currently 0%, 15%, and 20%.

It is important to note that the contribution amount is limited to the lessor of earned income or the limit set in the Tax Code which is $6,000 for 2022 and $6,500 for 2023. Other important points:

  • The contribution can be made from any source so a parent could incentivize savings by matching the teen’s contribution. So, if the teen is going to contribute 20% of their income to the Roth, a parent could match that and gift the teen the money to contribute an additional 20%, thus, doubling the contribution to 40% of income. The limit would be that total contributions and cannot exceed the $6,000 (2022) and $6,500 (2023) limits.
  • Everyone has until April 15th to make the contribution for the PRIOR tax year so you can fund 2022’s contribution until April 15, 2023. (They must have earned income for 2022, though, so if they just got a job this year, they would be funding their 2023 contribution.)
  • Your teen should report the contribution on his or her tax return for the year of contribution but is not required to. If no return was required to be filed or they have already filed for 2022, they can still make the contribution. They should track their contributions, and the custodian of the account will send a Form 5498 each year, usually in May, which they should keep for record-keeping purposes.
  • There are income limits for making a direct contribution to a Roth so consult with your advisor if you (or your brilliant teen) has a substantial income.


How should they invest those funds? That is a topic for a different day, but this is a great way to get teens interested in and exploring the differences between stocks, bonds, ETF’s, and mutual funds. All of the online investing platforms like Schwab, TD Ameritrade, and Fidelity have tools and resources to help people learn about investing and are reputable sources of information. There are many commission-free ETFs that provide broad exposure to U.S. and international markets.

Time is your best friend in terms of investing so starting early and investing consistently will make their march toward financial security that much easier.

As part of our Financial Foundations series, we have free webinars which are a great resource for anyone to learn more about the basics of personal finance. Please email info@homrichberg.com to be added to the invitation list for future webinars.

1Earned income tax is a tax-related term and indicates that wages and other such income for contributions to retirement accounts, like IRAs and Roth IRAs, while unearned income, like interest and dividends, is not available for such contributions. Please talk to your tax accountant if you have any questions.


To learn more or get help talking to your kids about money basics, please email me at gildea@homrichberg.com.

Download a copy of this article.

Important Disclosures
This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed. The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.
©2023 Homrich Berg.

Filed Under: HB Updates

How Does The SECURE 2.0 Act Affect You?

February 10, 2023 by Isaac Bradley

The SECURE 2.0 Act was signed into law on December 29, 2022 as part of the Consolidated Appropriations Act (H.R. 2617). SECURE 2.0 builds on the Setting Every Community Up for Retirement Enhancement “SECURE” Act of 2019 (H.R.1865) with significantly more provisions. Although there are a number of important provisions in SECURE 2.0, none of them have the impact of the original SECURE Act’s 10-year rule which changed the distribution period for inherited accounts from the beneficiary’s life expectancy to 10 years, except in the case of certain eligible designated beneficiaries. We are still waiting for the IRS to provide final regulations on whether distributions must be prorated or can be deferred until the end of the 10-year period. SECURE 2.0 does nothing to roll-back or clarify the 10-year rule. Despite this, the provisions in SECURE 2.0 are almost all beneficial for taxpayers.

Some of the favorable tax changes in SECURE 2.0 include an increased required minimum distribution (RMD) age, additional ways to fund and access retirement plans, and relief for common retirement plan mistakes. These changes provide a number of tax saving opportunities but to take full advantage of these opportunities will require additional planning. As with any significant legislation, it is important to discuss the changes with your financial advisor to determine how they may impact your personal plan. The number of various provisions in SECURE 2.0 makes categorizing them a challenge, but the most significant provisions impacting individuals tend to fall into one of the following buckets:

  • Required Minimum Distributions
  • Retirement Plan Contributions
  • Accessing Retirement Funds
  • Relief for Retirement Plan Mistakes
  • 529 and ABLE Plan Enhancements

The planning strategy around RMDs is to try and take the amount of distribution each year that will result in the least overall tax.

Required Minimum Distributions (RMDs)

Increased RMD age. The original SECURE Act increased the RMD age for the first time ever from 70½ to 72. Section 107 of SECURE 2.0 increases the RMD age to 73 for individuals turning 73 during the years 2024-2032. This means that individuals turning 72 in 2023 (and therefore 73 in 2024) will have another year to defer their RMD. Section 107 provides an additional increase in the RMD age to 75 for individuals turning 73 in 2033 or later. Deferring RMDs gives those assets additional time to grow tax-free. However, just because you can defer RMDs doesn’t necessarily mean you should.

The planning strategy around RMDs is to try and take the amount of distribution each year that will result in the least overall tax. Deferring RMDs means you have fewer years over which to spread the distributions. Individuals in a lower tax bracket would likely be better off accelerating distributions to fill up the lower tax brackets. Unfortunately, it is not quite as simple as just filing up the lower brackets. Individuals must also take into consideration the impact a taxable distribution will have on Social Security benefits and Medicare premiums. Individuals can be taxed on up to 85% of their Social Security benefits to the extent their provisional income exceeds $32,000 for married filed jointly ($25,000 single). Similarly, individuals begin paying an income-related monthly adjusted amount (IRMAA) surcharge on their Medicare Part B/D premiums once their modified adjusted gross income exceeds $194,000 for married filed jointly ($97,000 single). For individuals in the highest tax bracket, it may be best to defer RMDs for as long as possible. However, even individuals in the highest tax bracket should consider whether tax rates are expected to rise in the future and whether accelerating distributions or making a Roth conversion could reduce their estate tax liability.

Elimination of RMDs from Roth employer plan. Section 325 of SECURE 2.0 eliminates RMDs for Roth accounts in employer retirement plans beginning in 2024. Currently Roth accounts in an employer plan such as Roth 401(k)s are subject to the RMD rules, while Roth IRAs are not subject to RMDs during the original owner’s lifetime. Upon attaining RMD age, many individuals roll their employer plan Roth account to a Roth IRA so the funds can stay in a Roth account and continue to grow tax-free. SECURE 2.0 appears to eliminate RMDs from all employer plan Roth accounts beginning in 2024, even those accounts from which RMDs are already being taken. Following this change, RMDs will no longer be a factor in the decision to roll an employer plan Roth to a Roth IRA. Instead, the decision should be based on factors such as creditor protection (employer plans generally have more protection), investment options (IRAs generally have more options), and fees (IRAs tend to be less expensive).

A surviving spouse may be treated as deceased spouse for RMDs. Section 327 of SECURE 2.0 provides surviving spouses with a new option regarding a deceased spouse’s retirement account. Beginning in 2024 a surviving spouse may elect to be treated as the deceased spouse. If the deceased spouse is younger, then this would allow the surviving spouse to defer RMDs until the deceased spouse would have reached RMD age. Alternatively, if the surviving spouse is younger then he or she may choose to roll over the deceased spouse’s retirement account into their own account to defer RMDs until the surviving spouse reaches RMD age. Note that a surviving spouse may also simply leave a deceased spouse’s account as an inherited account. This would result in having to take RMDs sooner, but if the surviving spouse has a current need for the funds and the surviving spouse in the case of a rollover (or deceased spouse if electing to be treated as such) is less than 59½ this may be the best option to avoid the 10% early withdrawal penalty.

New Qualified Charitable Distributions (QCD) rules. A QCD is a direct transfer of funds from an IRA to a qualified charity and may be counted toward satisfying all or a portion of an individual’s annual RMD. An individual must be 70½ or older to make a QCD. The maximum annual QCD amount is currently $100,000, but section 307 of SECURE 2.0 provides that this will be indexed for inflation beginning in 2024. QCDs are one of the most tax efficient ways for individuals 70½ or older to make charitable gifts because they can directly reduce up to $100,000 of RMD each year that would have otherwise had to be recognized as taxable income. However, individuals with highly appreciated securities may be better off taking their RMD and offsetting the income by giving the securities (and their built-in gain) to charity. Because charitable giving is such a significant part of income tax planning it is important to speak with your financial advisor to make sure you understand all of your options.

Section 307 of SECURE 2.0 also provides an opportunity to make a one-time QCD election to transfer up to $50,000 to a charitable remainder trust (CRT) or charitable gift annuity (CGA) beginning in 2023. This sounds like a great opportunity to take up to $50,000 of RMD that would have been taxed in the current year and spread it over future years, but there are a number of conditions. First, a CRT/CGA transfer counts toward your annual $100,000 QCD limit and the entire transfer must be completed in a single year. Second, the CRT/CGA must have a minimum annual payout rate of 5% and only the individual making the transfer, or their spouse may receive payments. Third, and perhaps most importantly, all payments are fully taxable at the recipient’s ordinary income tax rate. For CRTs there is an additional requirement that they can be funded only with this one-time QCD. This means the CRT cannot hold assets prior to the QCD transfer or receive additional assets after the transfer. Spouses can each transfer up to $50,000 from their respective IRAs to a single CRT or joint-life CGA for a total of $100,000. Due to the cost and complexity of setting up a CRT, it is hard to imagine anyone setting one up for only $50,000 ($100,000 if both spouses contribute). Because of this a CGA would likely be the best choice for anyone interested in this one-time QCD election.

The deadlines for establishing and contributing to retirement plans can also get confusing.

Retirement Contributions

Inflation adjusted IRA catch-up contributions. In 2023 individuals can contribute up to $6,500 to either a Roth or traditional IRA. Individuals aged 50 or older can make an additional $1,000 catch-up contribution. The annual contribution limit is currently indexed for inflation and section 108 of SECURE 2.0 provides that the catch-up contribution limit will be indexed for inflation as well beginning in 2024. Contributions to a traditional IRA are fully deductible unless you or your spouse are covered by an employer retirement plan in which case the deduction is phased out at certain income levels. Contributions to a Roth IRA are not deductible but the funds grow tax-free. The ability to contribute to a Roth IRA is similarly phased out at certain income levels.

Solo-401(k) deadline extended. Currently SEP IRA accounts and certain other employer plans can be established and funded after year-end, up to the employer’s tax filing deadline plus extensions. Section 317 of SECURE 2.0 now allows one-participant 401(k) plans (with plan years beginning in 2023 or later) to be established and funded after year-end, up to the individual tax filing deadline. These plans are also known as solo-401(k) plans and are only available to businesses owners who have no full-time employees (except for their spouse). There has been some uncertainty as to whether one-participant 401(k) plans could be established after year-end and it appears these plans can still be funded with the employer contribution up to the employer’s tax filing deadline plus extensions, but Section 317 makes it clear that with regard to employee contributions the plan must be established and funded by the individual filing deadline. For example, a business owner can now wait until April 1, 2024, to establish and make 2023 contributions to a one-participant 401(k).

The employer and employee designations can be confusing. Self-employed business owners are essentially both the employer and employee. However, there can be a distinction for purposes of retirement contributions. A business owner with a one-participant 401(k) may elect to defer (i.e., contribute as an employee) up to $22,500 of their compensation in 2023 ($30,000 if age 50 or over). The business can then contribute (as the employer) up to 25% of the business owner’s compensation, provided the total employee and employer contributions cannot exceed $66,000 for 2023 ($73,500 if age 50 or over). For single owner businesses earning over $300,000 per year the employee vs. employer contribution distinction doesn’t really matter because the maximum contribution could all come from the business (i.e., the employer) since 25% of $300,000 exceeds the $66,000 contribution limit. However, the distinction can be important for single owner businesses making less than this. For example, if a business were to earn $100,000 in 2023 then the business (i.e., the employer) could only contribute $25,000 (25% of $100,000), but the business owner (i.e., employee) could contribute an additional $22,500 ($30,000 if age 50 or over). This is where the deadlines for establishing and contributing to a plan become important and why the ability to establish and contribute to a one-participant 401(k) as late as the individual filing deadline can make a difference for certain business owners.

The deadlines for establishing and contributing to retirement plans can also get confusing. The chart below lists the deadlines for most plans. Note that the dates in this chart are for the plan year unless otherwise noted (i.e., a SIMPLE IRA for 2023 must be set up by October 31st of 2023), while the filing deadlines are for the year following the plan year (i.e., you have until April 2024 to file your 2023 tax return and you have until April 2024 to setup and fund a Solo 401(k)).

Increased employer plan catch-up contributions. Beginning in 2025, section 109 of SECURE 2.0 increases employer retirement plan (e.g., 401(k) and 403(b) plan) catch-up contribution limits for individuals ages 60-63 to the greater of $10,000 or 150% of the standard catch-up limit currently in place for those age 50 or over ($7,500 in 2023)). Note that Congress only increased the catch-up limit for individuals ages 60-63 and it drops back to the standard catch-up limit for those age 64 or over. In addition, section 603 of SECURE 2.0 states that beginning in 2024, catch-up contributions made by employees with wages in excess of $145,000 must be designated Roth contributions. This applies to all employer plan catch-up contributions, not just the increased catch-up contributions for individuals ages 60-63. Note that employer retirement plans are not required to accept Roth contributions. However, Section 603 essentially disallows all catch-up contributions if the plan does not allow Roth designated catch-up contributions. This provision will likely cause many employers to modify their retirement plans to allow Roth contributions if they do not do so already.

Increased SIMPLE plan catch-up contributions. Beginning in 2025, section 109 of SECURE 2.0 also increases SIMPLE IRA and SIMPLE 401(k) catch-up contribution limits for individuals ages 60-63 to the greater of $5,000 or 150% of the standard catch-up limit currently in place for those age 50 or over ($3,500 in 2023). SIMPLE IRA and SIMPLE 401(k) plans are only available to an employer with 100 or fewer employees, and the employer is required to either match employee contributions on up to 3% of compensation or make a contribution for each eligible employee in an amount equal to 2% of their compensation. Note that the Roth requirement for catch-up contributions mentioned above does not apply to SIMPLE plan or IRA catch-up contributions which can continue to be made pre-tax.

Roth designated employer match. Beginning in 2023, section 604 of SECURE 2.0 allows defined contribution plans to give participants the option of receiving matching contributions on a Roth basis. This means that all contributions to a Roth 401(k) plan can now be after-tax contributions, not just the employee portion. However, section 604 also provides that any Roth designated employer contributions will be included in the employee’s income. For example, if an employer plan provides up to 3% matching contributions, then an employee that earns $100,000 and contributes $3,000 to their Roth 401(k) could elect to have the $3,000 employer match also be a Roth contribution, but this would increase the employee’s income for tax purposes by $3,000. Individuals who anticipate paying taxes at a higher rate in the future should consider contributing to a Roth 401(k) and having any employer match be made on a Roth basis as well if possible. Note that although employers are currently allowed to make Roth designated contributions, it will take some time for employers and plan administrators to get this implemented.

Student loan payments qualify for matching contributions. Beginning in 2024, section 110 of SECURE 2.0 allows an employee’s student loan payments to be treated as retirement plan contributions for purposes of the employer match. This is a great benefit for anyone with student loans who may not have the funds to contribute to their retirement plan in addition to making their student loan payments. This benefit is likely to become something younger candidates look for in an employer.

SECURE 2.0 not only creates additional retirement contribution options and incentives, but also provides a number of new ways that individuals can access their retirement funds without penalty.

Accessing Retirement Funds

SECURE 2.0 not only creates additional retirement contribution options and incentives, but also provides a number of new ways that individuals can access their retirement funds without penalty. Distributions from retirement plans other than Roth plans are subject to ordinary income tax, and distributions taken before age 59½ are subject to an additional 10% early withdrawal penalty unless an exception applies. Below are some of the exceptions to the 10% early withdrawal penalty currently available:

  • Disability: Withdrawals after the plan participant/owner becomes disabled.
  • Military Service: Withdrawals by certain qualified military reservists during active duty.
  • Medical Expenses: Withdrawals for unreimbursed medical expenses that exceed 10% of adjusted gross income.
  • Insurance: Withdrawals to pay certain health insurance premiums while unemployed (limited to IRA plans).
  • Education: Withdrawal is for certain qualified higher education expenses (limited to IRA plans).
  • Home Purchase: Withdrawals of up to $10,000 for qualified first-time homebuyers (limited to IRA plans).
  • Birth or Adoption: Withdrawals of up to $5,000 for birth or adoption related expenses.
  • Equal Payments: Withdrawals taken as a series of substantially equal payments that are calculated based on life expectancy and meet certain requirements.
  • Separation from Service: Withdrawals by employees who separate from service (i.e., leave their employer) at age 55 or older (age 50 or older for public safety employees).

SECURE 2.0 expanded the list of 10% early withdrawal penalty exceptions to include the following:

  • Equal Payments (expanded): Beginning in 2024, the equal payment exception is expanded to allow individuals to make partial rollovers or transfers of accounts from which exempt equal payments are currently being made, provided the total distributions from the original and rollover accounts are equal to the distributions that would have been taken from the original account. It does not appear that the distributions from the original and rollover accounts have to be in proportion to their balances as long as the total distributions equal the original distribution amount. This change could be significant for individuals who have been taking equal payments to qualify for the exception. Prior to this rule going into effect (in 2024), rollovers or transfers trigger a retroactive 10% early withdrawal penalty on all distributions taken before age 59½ pursuant to the equal payments exception.
  • Separation from Service (expanded): Beginning in 2023, the exception for employees who leave their employer is expanded to include corrections officers, forensic security employees, and employees providing firefighting services that are age 50 or older as well as public safety employees with at least 25 years of service under the plan (the legislation is unclear as to whether the 25 years of service have to be with the same employer).
  • Terminal Illness: Beginning in 2023, there is an exception for distributions to a terminally ill individual, which for purposes of this exception is an individual who has been certified by a physician as having a condition which can reasonably be expected to result in death in 84 months (significantly more than the standard definition’s 24-month timeframe).
  • Federal Disaster: Individuals with their principal abode located within a Federally declared disaster area may withdraw up to $22,000. This exception is retroactive back to 2021 but going forward the withdrawal must generally be taken within 180 days of the disaster. Income tax resulting from the withdrawal may be spread evenly over the three-year period that begins with the year of distribution and withdrawals may be repaid within three years to avoid paying tax on the distribution. In addition, individuals with their principal abode located in a Federally declared disaster area may take a loan from their qualified plans of up to 100% of their vested balance or $100,000 and they have an additional year to repay the loan if taken within 180 days of the disaster (the repayment period is generally five years).
  • Emergencies: Beginning in 2024, individuals may withdraw up to $1,000 during a calendar year for unforeseen or immediate financial needs relating to necessary personal or family emergency expenses. Subsequent emergency withdrawals are not allowed until the prior withdrawals have been repaid, the individual makes contributions to the plan equal to the withdrawal amount, or three years have passed since the withdrawal. Beginning in 2024, employers will also be able to establish Roth designated emergency savings accounts linked to existing employer retirement accounts and eligible for matching contributions. However, these emergency savings accounts are only available for employees earning less than $135,000 per year and contributions must cease when the account reaches a maximum of $2,500.
  • Domestic Abuse: Beginning in 2024, victims of domestic abuse may withdraw up to the lesser of $10,000 or 50% of their vested balance from most defined contribution plans. Withdrawals must be taken within one year of the abuse and may be repaid within three years to avoid tax on the distribution.
  • Long-Term Care: Beginning in 2026, withdrawals of up to $2,500 per year will be allowed to pay long-term care insurance premiums. The other early withdrawal penalty exceptions under SECURE 2.0 are geared toward emergencies, but the long-term care insurance exception gives individuals an additional planning option around a potential future benefit. It is important that you discuss long-term care options with your financial advisor to determine if the use of retirement funds to pay for long-term care insurance is the best use of those funds.

Note that the exceptions mentioned above may allow you to avoid the 10% early withdrawal penalty, but you will still have to pay income tax on the amount distributed unless it is repaid. It is best to leave funds in retirement accounts to the extent possible so they can continue to grow tax deferred. As mentioned above, individuals turning 73 in 2024 or later can defer their RMDs until at least age 73.

Essentially, if you catch the mistake within two years then you get the penalty reduction, but if the IRS catches the mistake, then you are out of luck.

Relief for Retirement Plan Mistakes

SECURE 2.0 contains a number of provisions providing relief from retirement plan mistakes. Historically the penalty for failing to take an RMD has been significant (50% of the RMD amount that was not distributed). Beginning in 2023, section 302 of SECURE 2.0 reduces the penalty for failing to take an RMD from 50% to 25%. The penalty can be further reduced to 10% if the RMD is taken during the “correction window” which ends upon the earliest of the following: 1) notice of deficiency is sent, 2) tax is assessed, or 3) the last day of the second tax year after the tax is imposed (i.e., becomes due). So, to qualify for the penalty reduction for an RMD that was failed to be taken in 2023 could be taken as late as December 31, 2025, but should be taken as soon as possible to avoid missing the correction window as a result of a notice of deficiency or tax assessment. Essentially, if you catch the mistake within two years then you get the penalty reduction, but if the IRS catches the mistake, then you are out of luck.

Section 305 of SECURE 2.0 is not a legislative change, but rather directs the IRS to make changes to the Employer Plans Compliance Resolutions System (EPCRS) by the end of 2025. EPCRS is laid out in IRS Revenue Procedure 2021-30 and permits self-correction of inadvertent failures to comply with employer retirement plans (e.g., 401(k) and 403(b) plans). SECURE 2.0 provides for more types of plan errors to be self-corrected, specifically allowing for self-correction of errors relating to loans to the plan participant. However, a more significant change may be the expansion of EPCRS to permit self-correction of IRA errors. SECURE 2.0 specifically expands EPCRS to allow for waivers of the penalty for missed RMDs and for non-spouse beneficiaries of inherited IRAs to return distributions that they inadvertently took, not realizing it would be treated as income. In addition, SECURE 2.0 directs that the correction period under EPCRS be indefinite provided corrective action has begun prior to the error being discovered by the IRS. So, as with the missed RMD penalty discussed above, it is important to address mistakes as soon as possible to have the penalties waived.

Section 313 of SECURE 2.0 provides that the statute of limitations for penalties relating to an RMD shortfall (i.e., missed RMD) or excess IRA contribution begins when the individual income tax return (Form 1040) is filed for the applicable tax year (or as of the tax filing deadline if no income tax return is required). Previously the statute of limitations for these penalties did not begin until Form 5329 (where these penalties are reported) was filed. However, if you did not know there was a mistake then you would not know to file Form 5329, so the statute of limitations often remained open indefinitely. The statute of limitations for assessing a penalty on an RMD shortfall is three years while the statute of limitations for assessing a penalty on an excess IRA contribution is six years. As mentioned above, beginning in 2023 the penalty for failing to take an RMD is 25% of the undistributed amount, with a chance to reduce the penalty to 10%. Excess IRA contributions are taxed at 6% per year for each year the excess amounts remain in the IRA.

Although you can have only one designated beneficiary of a 529 plan at any time, it is a simple process to change the designated beneficiary.

529 and ABLE Plan Enhancements

529 rollover to Roth IRA: One of the most talked about provisions in SECURE 2.0 is the ability to rollover funds from a 529 plan to a Roth IRA beginning in 2024. Section 126 of SECURE 2.0 states that 529 plan distributions will not be subject to income tax or penalty if they are made directly to a Roth IRA for the benefit of the designated beneficiary of the 529 plan subject to the following conditions:

  • The 529 plan of the designated beneficiary has been maintained for at least 15 years;
  • Only 529 plan contributions (and earnings on those contributions) made at least five years prior to the Roth IRA transfer are eligible;
  • The amount transferred during any year cannot exceed the annual Roth IRA contribution limit which for 2023 is the lesser of the beneficiary’s taxable earnings or $6,500 ($7,500 if age 50 or older) reduced by any other IRA contributions during the year; and
  • The maximum amount transferred for a beneficiary cannot exceed $35,000 during their lifetime.

One thing to note is that while generally only individuals who fall below a certain income threshold may contribute to a Roth IRA, the income limitation does not apply to these qualifying 529 distributions.

Unfortunately, the legislation is not clear regarding how changing the designated beneficiary of a 529 plan would impact the eligibility and timeframe of a Roth transfer. Ideally, if a 529 plan had funds not needed for education expenses, the owner of the plan could change the designated beneficiary to themselves or their spouse and transfer the funds to a Roth IRA for their benefit. They could then change the designated beneficiary to another qualified family member and transfer funds to a Roth IRA for their benefit as well.

Although you can have only one designated beneficiary of a 529 plan at any time, it is a simple process to change the designated beneficiary. In fact it is fairly common for a family to have only one 529 plan for multiple children. After the first child finishes college, the plan owner simply changes the designated beneficiary to the next child attending college. However, if changing the designated beneficiary restarts the 15 year period the plan must have been maintained to qualify for the Roth IRA rollover then families may need separate 529 plans for each child (and possibly for the parents as well).

It appears that the intent of this legislation is to encourage 529 plan contributions by helping to alleviate the concern that there will be remaining funds that can only be accesses through a non-qualified withdrawal (subject to income tax and a 10% penalty). Hopefully Congress or the IRS will provide guidance soon that provides flexibility with regard to beneficiary changes.

ABLE age limit increased: Section 126 of SECURE 2.0 increases the age by which an individual must become disabled to be eligible for an ABLE account to 46, beginning in 2026. An ABLE (529A) account is tax-advantaged savings accounts for individuals with disabilities. The annual contribution to an ABLE account is $17,000 in 2023 and the total contribution limit is subject to each state’s limit for education-related 529 accounts. In addition to being tax-advantaged, ABLE accounts generally do not impact an individual’s eligibility for SSI, Medicaid, and means-tested programs. Currently, ABLE account eligibility is limited to individuals who became disabled before turning 26 years of age, but you can establish an ABLE account after age 26 as long as you became disabled before your 26th birthday. Similarly, it appears that individuals will not have to be under age 46 in 2026 (the effective date of this legislation), but simply have been under age 46 at the time they became disabled. This should allow significantly more disabled individuals to be eligible for ABLE accounts.

Summary

This piece covers the more significant SECURE 2.0 provisions impacting individuals, but SECURE 2.0 is an enormous piece of legislation and there are other provisions that will be important to specific individuals. As with any significant legislation, it is important to discuss the changes with your financial advisor to determine how they may impact your personal plan.

Important Disclosures

This article may not be copied, reproduced, or distributed without Homrich Berg’s prior written consent.

All information is as of date above unless otherwise disclosed.  The information is provided for informational purposes only and should not be considered a recommendation to purchase or sell any financial instrument, product or service sponsored by Homrich Berg or its affiliates or agents. The information does not represent legal, tax, accounting, or investment advice; recipients should consult their respective advisors regarding such matters. This material may not be suitable for all investors. Neither Homrich Berg, nor any affiliates, make any representation or warranty as to the accuracy or merit of this analysis for individual use. Information contained herein has been obtained from sources believed to be reliable but are not guaranteed. Investors are advised to consult with their investment professional about their specific financial needs and goals before making any investment decision.

©2023 Homrich Berg.

Resources:

https://www.congress.gov/bill/116th-congress/house-bill/1865

https://www.congress.gov/bill/117th-congress/house-bill/2617/text

https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf

https://www.ssa.gov/benefits/retirement/planner/taxes.html

https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly

https://www.irs.gov/publications/p560

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions#:~:text=More%20In%20Retirement%20Plans&text=Generally%2C%20the%20amounts%20an%20individual,tax%20unless%20an%20exception%20applies.

https://www.irs.gov/pub/irs-drop/rp-21-30.pdf

https://www.irs.gov/pub/irs-pdf/p970.pdf

If you have any questions or would like to discuss further, please reach out to your client service team or call 404.264.1400.     

Filed Under: HB Updates

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