Philanthropy: 5 Steps to Evaluate Charities for Year-End Donations

by A. Scott White, CFP®, ChFC®, CLU; President, Scott White Advisors

As the holiday season approaches, your mailbox and email will fill with donation requests from charities. Lots of charities. According to Cause IQ, in 2020 there were over 1.8 million nonprofit organizations, 1.7 million of those being active organizations. The number is growing each year; since 2016, close to 20,000 additional nonprofit organizations were registered. And although 2020 hit many nonprofits hard, the Urban Institute theorizes that corresponding social movements may have created momentum for others.

If you’re like me, you want to make a difference for those who are less fortunate than you. As your year wraps up, your spirit of giving includes charitable financial donations. But you want to make your contribution decisions in an informed manner, to be sure your donations are put to use in the way you intend.

So how do you make wise giving choices? Here are 5 steps to streamline your charity evaluation process.

1. Determine your philanthropic priorities.

What causes are important to you and your family? What impact do you want your donation to make? Get specific. Some donors give to charities in their communities, wanting the money to stay where they live and support nearby people and needs. Some donors want to fund national or international programs and issues, or research. You may want to fund a start-up charity, or perhaps an established one. Decide what is most important to you, then make a list of charities that provide services relevant to your priorities.

But be careful. Some donors choose charities based on the name of the charity. But names can sometimes be misleading-or worse, the charities can be shams, with names that sound like other, well known charities so that donors will think they’re giving to the well-known entity.

2. Consult charity watchdog resources.

Free charity evaluation websites such as BBB Wise Giving Alliance, Charity Navigator or GuideStar can speed your research process. These sites review, analyze and score charities based on specific criteria such as programmatic results, transparency, oversight and governance, compensation, expenses, overhead, and donor privacy. If a charity evaluation service has looked into the nonprofit you’re interested in, chances are you’ll be able to complete your research using their resources.

3. Confirm the charity’s tax-exempt status and mission.

But what if the charity you’re considering isn’t listed in the charity watchdog services you consulted? Newer charities may not yet be in the pipeline for evaluation, and charities with very small budgets typically aren’t included in those watchdog databases. In that case, you’ll want to do yourself. Confirm that the charity you are considering supporting is a tax-exempt 501(c)(3) public charity. If you aren’t sure, ask for a copy of the charity’s nonprofit determination letter from the IRS. (Only bona fide nonprofit organizations with tax-exempt status receive this document from the IRS.) If the organization is faith-based, ask to see its listing in its official denomination directory. Once you’ve confirmed nonprofit status, visit the charity’s website for information about its mission, programs and services, board of directors, and annual reports.

4. Examine the charity’s finances.

Among the documents to look for is the charity’s IRS Form 990 or 990EZ, which charities that have revenue of more than $50,000 are required to file. (Religious organizations are exempt.) This form allows the IRS and the general public to evaluate a nonprofit’s operations.

Form 990 information reveals the charity’s missions, programs, and finances. It provides data on how much a charity raises and how it spends its money. It includes direct, indirect, and government support, as well as program service revenue. It also shows program, management and fundraising expenses. According to GuideStar, financial information is more meaningful when viewed over several years. A single year’s Form 990 is a snapshot in time, and organizations typically change over time. GuideStar recommends potential donors review three years of financial information.

5. Donate. Then follow your investment.

Once you’ve decided which charity to support and you’ve made your donation, don’t stop there. Follow up with the charity in 6 months. Ask how they’re using your money. If you’re not satisfied with their answer, don’t continue to support that nonprofit. But if you are satisfied with the use of your donation and the charity’s progress, consider making a commitment to support their work over the long haul. It’s the long-term investment of committed donors that helps charities make the most progress-and achieve their worthwhile missions.

If you need support incorporating your philanthropic goals into your financial plans contact us at Scott White Advisors today. Visit www.scottwhiteadvisors.com or call (239) 936-6300.

Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Hyperlinks are provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any third-party web site or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site users and/or members. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

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Take Quick Action Now to Enhance Your Online Security in 2023

Perhaps you know a friend whose email was hacked. Maybe your data was part of a large online breach. Or possibly you’ve been a victim of IRS taxpayer identity theft, as I was. (Taxpayer ID theft is one of the fastest-growing forms of cybercrime, by the way.)

We all know that cybercrime is on the rise especially at this time of year. According to Forbes, cybercrime is growing exponentially each year, and 2022 saw climbing cyber threats, ransomware attacks and identity thefts¹. So as we enter 2023, I hope your list of New Year’s resolutions includes a commitment to increase your online security. Unlike losing weight or saving more money – the most common New Year’s resolutions – the following actions are quick and free.

Here are 3 things you can do now, in a matter of minutes, to increase your online security in the New Year.

1. Enable 2-Step Authentication

Yes, 2-step is a type of country dance, but today the term also refers to a type of verification or authentication that requires two actions. If you’ve ever tried to log into a bank account and a text message is sent to your phone with a code to enter on the website you’re logging into, that’s 2-step authentication. If you’ve swiped your bank card at an ATM, and then entered your personal identification number or PIN, that’s another example of 2-step authentication, which is also known as 2-factor authentication, 2FA, or dual-factor authentication.

According to the National Institute of Standards and Technology, 2FA is a security enhancement that allows you to present 2 pieces of evidence when logging into an account.² The evidence is your ‘credentials,’ and those can be something you know, like a password; something you have, like a smart card; or something you are, like a fingerprint². With 2FA, your security is greater because in order to steal your identity, thieves would need to have both your password and your phone or email (to get the code).

You should use 2FA whenever possible, and always for your primary email, financial accounts, and health records. While some organizations require you to use 2FA, many offer it as an extra option that you can enable—but you must take the initiative to turn it on.

2. Use strong passwords. Or passphrases.

We all know not to use the same easy-to-guess password for all our accounts – or even for one account. Instead, use a strong password, with at least 12 characters or symbols, that’s unique to only one account. Or use a passphrase, which is like a password, but longer and more secure. In essence, it’s an encryption key that you memorize. The most effective passphrases contain upper and lowercase letters plus at least 1 number and 1 special character, such as a question or exclamation mark, and do not contain your user name or other data about you. Here’s an example of a passphrase: 2BeorNOTtobe?!

And how do you remember those passwords or passphrases? Do not carry them on a card in your purse or wallet. Instead, consider using a password manager (PM), an online browser or app that remembers all of your passwords or passphrases for you. PMs can keep you up to date and alert you of any breaches or hacks to your accounts. But there’s a big caveat: you absolutely cannot lose your password to gain entry into your PM. And PMs are targets for hackers. They can be hacked if your device is infected with malware. Which leads us to action #3.

3. Download security updates.

A security update improves security of your devices and fixes bugs, or problems. Your laptop may be set to install security updates automatically. If not, go to Settings – Update – Security and choose Automatic. You may need to authorize an update on your phone, but be sure to update that, too.

Follow these 3 recommendations, improve your online security, and have a joyous-and cybercrime-free-New Year.

¹https://www.washingtonpost.com/creativegroup/sophos/three-cyber-attacks-likely-to-hit-2022/

²https://www.nist.gov/blogs/cybersecurity-insights/back-basics-whats-multi-factor-authentication-and-why-should-i-care

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Financial Aid Changes from CAA Legislation Extends into 2023

By A. Scott White, CFP^®, ChFC^®, CLU^®
President, Scott White Advisors

Though now the worst of it remains in the rearview mirror, the Covid-19 pandemic was a period of great change, physically, emotionally – and fiscally. Those very changes still ripple into our lives in 2023, nearly three years later. In December of 2020, for example, the Consolidated Appropriations Act, 2021(CAA) was passed, yet its impacts can still be felt.

What Is the CAA?

Initially designed to be an emergency relief mechanism responding to the Covid-19 pandemic, the CAA has farther-reaching effects extending to 2023. An expansive act, the CAA includes provisions for a variety of departments and areas of living, with many changes set to continue through 2023. Not least among these are the financial aid provisions, which includes a higher education emergency relief fund meant to support colleges and universities as they navigate the pandemic and post-pandemic world.

The CAA allocates about $22.7 billion to institutions of higher education, 89 percent of which is specifically reserved “to prevent, prepare for, and respond to coronavirus.” Part of the provisions of the act encourage and, in some cases, require institutions to use funds to aid students financially. Students in college or entering college during that time benefitted from the extra funds put toward grants to help cover cost of attendance as well as emergency Covid-19 costs – benefits that extend past 2021.

The FAFSA Simplification Act

Another change provided for in the CAA is one taking effect in the 2023-24 Free Application for Federal Student Aid (FAFSA) form, which opened October 1, 2022. Entitled the FAFSA Simplification Act, this smaller bill within the CAA aims to do just that: ease the process of filling out the FAFSA form. Restructured and updated, the form will ideally lead to easier access as well as increased fairness. Some of the new changes to the form include:

• Fewer questions. Eliminating questions about drug convictions and getting information from higher education institutions when possible, reduces the length of the form.
• Changes to cost of attendance. This includes separating the previously singular charge of “room and board” to two separate balances.
• Expanded income protection allowance. This will generally benefit students and parents, sheltering portions of income from the FAFSA.
• Changes to untaxed income and benefits. Several types of “untaxed income and benefits” will now either be omitted or relabeled as “assets”. As well, “income” will not include a federal work-study job, the American Opportunity tax credit, or the Lifetime Learning credit.
• Multiple children in college at the same time loses preferential treatment.
• Expanded Pell Grant. These changes will allow a greater number of students to be eligible for a Pell Grant.
• Updated terminology. The Expected Family Contribution, or EFC, is now called the Student Aid Index, or SAI.

Now open in its new, simplified state, the 2023-24 FAFSA is a financial aid change affecting allocation of financial aid funds. Clearly, the CAA has had long-lasting effects and will continue to. From simplifying the FAFSA to financial aid provisions for higher education institutions, new legislation can have resounding effects for families with students in college or about to enter college.

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Success During the “Great Wealth Transfer” 

by A. Scott White, CFP®, ChFC, CLU

President, Scott White Advisors 

Since 2019 we’ve been hearing about the Great Wealth Transfer – where Baby Boomers are expected to transfer $15-68 trillion in the next 20-30 years. 

While we would all like to believe that a well-formed and up-to-date estate plan alone can ensure successful wealth transference from one generation to the next, research illustrates a very different outcome. According to studies cited in the book Preparing Heirs by Victor Preisser and Roy Williams, nearly 70% of family wealth transference and business succession plans fail. Couple this statistic with the fact that the largest intergenerational wealth transference is upon us, and we have a compelling and urgent challenge to address.1 

Why do less than a third of wealthy families retain control of their assets in the wealth transference process? Although it may be surprising, even the most solid and well-crafted plans can fail, typically due to estate erosion caused by inadequate tax planning, liquidity issues forcing below-market sales, and lack of specificity leading to conflict among heirs. More striking, the heirs might lose control of their inheritance not from external sources, “…but rather in the values and practices of the heirs themselves.”1 

So if you’re already spending time and money developing sophisticated plans to help protect your assets-such as a family business, real estate, and financial investments, as well as philanthropic foundations and trusts-what else can you do? Although it may sound simplistic, the answer is communication. Candid discussions about our own mortality are undoubtedly uncomfortable; however, postponing them may actually make situations worse. With trillions going directly from elder Baby Boomer parents to Gen X’ers and Millennials in the next two decades, there’s a great deal at stake.. 

A clearly developed plan, investment policy statement, and open communication greatly increase your odds of successful wealth transference. Ken Dychtwald’s “Age Wave” study revealed that less than one-third of Baby Boomers and their parents had held a comprehensive discussion on all aspects of legacy planning. Although personal discomfort with discussing death and inheritance is a major hindrance, another hindrance may simply be misinterpreting each other. 

For example, Boomers feared upsetting their parents with such discussions, and vice versa. Almost 35% of the Boomers were more uncomfortable discussing their parents’ situation than the parents themselves (22%). And both groups thought the talk would cause conflict within the family (22% Boomers, 20% parents).2 

The first step to solving this is to reframe the entire conversation. Rather than limit the topic to physical assets and possessions (the tangible inheritance), we encourage families to expand the topic to include intangibles such as positive memories and stories. Recalling family memories, stories and traditions illuminate a family’s ethics, morality, faith and even wishes for the future. 

The revealed shared history facilitates intimacy and can even provide insight into how other issues might be addressed in the future. 

Regardless of how uncomfortable it might be to discuss death and inheritance, postponing these discussions won’t make the discomfort go away. If anything, it increases the likelihood of more intense conflict at a later point. Consider it another aspect of the legacy one generation leaves the next – security in each other and their financial future. 

1 Preparing Heirs: Five Steps to Successful Transition of Family Wealth and Values, Roy Williams and Victor Preisser, San Francisco: Robert D. Reed Publishers, 2003 

http://www.familymoneyvalues.com/index.php/prepare-an-heir/128-training/153-five-ways-to-prepare-your-heir-to- 

inherit-your-estate 

2 “The Allianz American Legacies Study” by Dr. Ken Dychtwald of Age Wave, 2005 

https://www.allianzlife.com/-/media/files/allianz/documents/ent_120_n.pdf

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7 Ways to Maintain a Healthy Brain

by A. Scott White, CFP®, ChFC, CLU
President, Scott White Advisors  

Maintaining a healthy brain is always a beneficial practice, but particularly when considering one’s long-term health. There are many steps a person can take now to ensure better brain health in the future, decreasing risk of dementia and Alzheimers as well as creating a generally more fruitful retirement experience. Some of the most key factors include precisely what you might expect: improved sleep, diet, exercise, and avoiding head trauma, but other factors may be less obvious, including maintaining heart health, staying socially engaged, and avoiding or moderating substance usage.

1. Improve Sleep

The act of sleeping is restorative for a multitude of bodily functions – and the brain is no exception. According to Scripps Health, some current theories suggest that sleeping may help clear abnormal proteins called amyloids from the brain, clearing up cognitive function as well as consolidating memories to improve overall memory.

Maintaining good sleep hygiene is an important piece of improving sleep, including removing devices and other distractions from your sleeping space as well as limiting exercise, big meals, and excessive water intake close to bedtime. Sleepytime tea and organic melatonin are cited as examples of healthy sleep aids.

2. Keep Up a Healthy, Balanced Diet

Regularly sticking to a diet of brain-healthy foods can be key to long-term brain health. This can be achieved by increasing the amount of fruits, vegetables, whole grains, healthy fats and quality proteins in one’s diet while limiting the intake of processed foods. The Mayo Clinic recommends the Mediterranean diet. Balance in diet is incredibly important because, as the saying goes, “you are what you eat.” Foods fuel one’s body and brain, and therefore drive how they function – so an improved diet leads inevitably to improved health.

3. Ensure Sufficient Exercise

Another lifelong habit that can aid in maintaining brain health is, of course, exercise. Participating in activities to increase one’s heart rate for 30 to 60 minutes a few times a week can make a big difference – whether that is biking, walking, playing tennis, or any other number of other moderate aerobic activities.

Regular exercise increases blood flow and oxygen flow to the brain, improving cognitive function in the long term and according to the Mayo Clinic, can help counter the natural reduction in brain connections that can occur in the aging process.

4. Avoid Head Injuries

Perhaps an obvious connection, various studies have shown that the more head injuries a person sustains in their life, the more their risk for dementia increases. Therefore it remains important to protect one’s head from hard impact in order to maintain brain health.

5. Maintain Heart Health

Just as maintaining physical health through exercise also helps brain health, so too does keeping one’s heart healthy. Since the brain is connected to all parts of the body, it is necessary to take care of the entirety of one’s self. Keeping blood pressure, cholesterol and blood sugar in a healthy range ensures healthy arteries and blood flow, thereby also keeping the brain healthy. Luckily, this can be achieved through some of the other healthy brain habits, including regular exercise and a balanced diet.

6. Stay Socially (and Mentally) Active

Another major boon to brain health is maintaining social and mental acuity. Engaging with others in social settings and challenging oneself with games, puzzles, and other mentally focused activities can help maintain neuroplasticity – the flexibility and smooth function of the brain – and improve brain health. Social interaction also has been found to decrease rates of stress, depression and other mental illness according to the Mayo Clinic, which in turn has been found to decrease risk of Alzheimer’s and dementia later in life.

7. Moderate Alcohol Usage and Quit Smoking

Just like avoiding brain injuries, moderating alcohol intake and quitting smoking helps maintain overall physical and mental health, in turn improving the health of the brain.

A decline in brain health, particularly during the aging process, can be a scary possibility to consider, but it does not have to be. There are a variety of habits and actions a person can take to maintain a healthy brain. And it can be at least partially under the control of the individual to decrease their own risk of dementia and Alzheimers later in life. By keeping with the suggestions outlined above, there is no reason a person cannot keep their brain healthy well into retirement.

Sources:

• https://www.mayoclinichealthsystem.org/hometown-health/speaking-of-health/5-tips-to-keep-your-brain-healthy
• https://www.alz.org/help-support/brain_health/10_ways_to_love_your_brain
• https://www.scripps.org/news_items/6888-6-ways-to-maintain-brain-health

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From lovable cartoon characters to childhood companions, pets are a heartwarming reminder of good times. But furry friends are for the young of heart, not just the young of age. In fact, pet ownership in retirement carries a compelling list of physical and mental benefits for owners and pets. 

Physical Benefits to Pet Ownership

No matter what stage of life one is in, physical activity helps maintain good health. Owning a pet often encourages regular exercise among their owners. A 2019 study from the International Journal of Environmental Research and Public Health confirms this, suggesting that dog ownership increases health benefits like sleep and physical activity. Beyond the increased physical activity and consequential increase in quality of life for retired pet owners, pet ownership can help establish routine. Following retirement, the lack of structure can be jarring. Yet a pet can help bring some structure back while also giving the owner a chance to fulfill the relatively low-demand role of caregiver. 

Socioemotional Benefits to Pet Ownership

But the benefits don’t stop there! Social and mental benefits can be reaped too. Owning a pet inevitably increases social interaction for owners and pets – a mutually beneficial transaction. Dogs did not earn the nickname “man’s best friend” without good reason: dogs and other pets form genuine connections with their human caretakers, providing necessary companionship. Experts at Aging In Place note that pet ownership has been shown to increase hormones like serotonin and dopamine, promoting feelings of happiness while decreasing stress hormones like cortisol. Thus, pet ownership can genuinely make people happier, improving their mental health to embrace each day.  

Of course, there are potential challenges to keep in mind before committing to pet ownership. Pets can be time and money intensive at times and require good mobility, so it is important to keep these things in mind when planning for pet ownership in retirement. Luckily, sites like PawsLikeMe – self-described as the eHarmony of pet-finding – and even local shelters are happy to help match up owners with their ideal pet. And if money is a concern, programs like “Pets for the Elderly” and foster programs like “Pets for Seniors” help eliminate pet costs. 

In most cases, these minor complications are outweighed by the physical and socioemotional benefits of pet ownership in retirement. With the right home, pets can live their best lives – and make yours better for it as well. 

Planning for pet ownership in retirement can be accommodated easily with the help of a Certified Financial PlannerTM who focuses on your retirement lifestyle priorities and alignment with your Investment Policy Statement. Contact us at (239) 936-6300 to help you prepare or pivot your retirement goals.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Scott White Advisors, LLC. Scott White Advisors, LLC is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc.

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3 Financial Steps to Ease Your Transition Into Retirement

by A. Scott White, CFP®, ChFC®, CLU; President, Scott White Advisors

No matter your current financial situation, retirement is an enormous transition. Financially, there is a lot to consider so that you are able to pursue fulfillment and fun in retirement. As a wealth advisor, I have had the privilege of working with many high income earners as they transition into retirement. There are several steps that must occur to ease the transition process.  

1. Get your estate plan in order

One of the most important steps in the retirement transition process is to ensure that your estate plans and family trusts are in order. Estate planning and family trusts are essential in ensuring that your wealth is protected, your assets are distributed according to your wishes, and your family is taken care of in the event of your passing.

Contact your financial planner or legal team to review your current estate plans and trusts to make sure they are up-to-date, in alignment with your IPS, and still meet your needs. This should include reviewing your will, power of attorney, and health care directives to ensure they accurately reflect your wishes. Additionally, it is important to ensure that your trust documents are current and properly structured to protect your assets. 

2. Assess your investment plan

In addition to estate planning and family trusts, it is important to ensure that you have a retirement plan in place that meets your needs and goals now and into the future. This includes considering your investment portfolio, investment diversification, insurance coverage, and sources of income. Your financial planner can help you assess your current financial situation and determine what steps you need to take in order to retire with confidence and in alignment with your IPS.

3. Share your plans and wishes

Finally, it is important to communicate your wishes and plans with your family. This includes discussing your estate plans and trusts, and ensuring that your family is aware of your retirement goals and plans. It is also important to discuss any changes you plan to make to your estate plan or trusts with your family to ensure everyone is on the same page.

Website CTA: Transitioning into retirement requires careful planning and preparation. However, you can reach retirement comfortably with the help of our Certified Financial Planner® team at Scott White Advisors. Visit www.scottwhiteadvisors.com or call (239) 936-6300.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Scott White Advisors, LLC. Scott White Advisors, LLC is not a registered broker/dealer and is independent of Raymond James Financial Services, Inc. 

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Weathering Financial Storms

by A. Scott White, CFP®, ChFC®, CLU; President, Scott White Advisors 

As a certified financial planner here in Florida, I’ve seen my fair share of natural disasters and the financial impact they can have on individuals and communities. Hurricane Ian, in particular, has left many people reeling from the damage and loss of property. 5.2 million in relief has been dispersed, but that does not cover the damage to our area and will not allow everyone to rebuild. 

For many individuals, the financial impact of Hurricane Ian will be felt for years to come. The likelihood of natural disasters are the reason reviewing insurance coverage prior to retirement, as well as annually, is an important factor for maintaining the life you desire in retirement. It’s important to remember that insurance policies can vary widely, and retirees in particular may face different coverage concerns. Make sure your policy has enough coverage to replace your property, and that your policy includes provisions for things like temporary housing, food, and other necessities.

Inflation is another factor that can impact the financial stability of individuals in the wake of a natural disaster. While inflation has averaged around 2% per year over the last 50 years, it is important to remember that inflation can vary widely from year to year and can have a significant impact on the cost of goods and services. This can be particularly challenging for those recovering from a natural disaster, as the cost of rebuilding and repairs is likely to increase as a result of inflation.

Despite the challenges that come with a natural disaster like Hurricane Ian, it is important to stay focused on your investment policy statement and to maintain a long-term perspective. Your investment policy statement is a roadmap for your financial journey, and it should reflect your goals, risk tolerance, and investment timeline. It’s essential to maintain your focus on your investment policy statement, even in the face of a disaster, as it will help you stay on track and make informed decisions about your finances. 

Being mindful of insurance coverage concerns, the impact of inflation, and staying focused on your investment policy statement, are your best options to weather any “financial” storm that you may endure. 

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Any opinions are those of the author and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Hyperlinks are provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any third-party web site or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site users and/or members. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. 

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5 Changes to Know About Required Minimum Distribution Rules in 2023

by A. Scott White, CFP®, ChFC®, CLU; President, Scott White Advisors 

Setting Every Community Up for Retirement Enhancement Act (SECURE 1.0) was enacted in 2019 to make it easier for Americans to save money in retirement.The SECURE 2.0 bill, passed late 2022, builds on changes established by the original and includes significant changes to the rules that apply to required minimum distributions from IRAs and employer retirement plans. Here’s what you need to know.

Required Minimum Distributions (RMDs) Explained

After you reach a certain age, the federal government requires you to withdraw annually from traditional IRAs and employer retirement plans. These required withdrawals are called Required minimum distributions (RMD) or minimum required distributions. You can withdraw more than the minimum amount from your IRA or plan in any year, but if you withdraw less than the required minimum, you will be subject to a federal tax penalty.

These lifetime distribution rules apply to traditional IRAs, Simplified Employee Pension (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, as well as qualified pension plans, qualified stock bonus plans, and qualified profit-sharing plans, including 401(k) plans. Section 457(b) plans and Section 403(b) plans are also generally subject to these rules. (If you are uncertain whether the RMD rules apply to your employer plan, you should consult your plan administrator or a tax professional.)

Here are the top five legislative changes to the RMD rules in 2023.

1. Increase of Applicable Age for RMDs

Prior to passage of the SECURE 1.0 legislation in 2019, RMDs were generally required to start after reaching age 70½. The 2019 legislation changed the required starting age to 72 for those who had not yet reached age 70½ before January 1, 2020.

SECURE 2.0 raises the trigger age for required minimum distributions to age 73 for those who reach age 72 after 2022. It increases the age again, to age 75, starting in 2033. 

To help clarify, here is a table, by date of birth, of the age when you have to start taking RMDs:

Your first required minimum distribution is for the year that you reach the age specified in the table, and generally must be taken by April 1 of the year following the year that you reached that age. Subsequent required distributions must be taken by the end of each calendar year (so if you wait until April 1 of the year after you attain your required beginning age, you’ll have to take two required distributions during that calendar year). However, you could delay RMDs from your current employer’s retirement plan if you continue working past your required beginning age. You will need to confirm these details with your employer plan representative and your tax professional. 

2. RMD Penalty Tax Decreased

The penalty for failing to take a required minimum distribution is historically a 50% excise tax on the amount by which you fell short of the required distribution amount. However, the SECURE 2.0 legislation reduces this RMD tax penalty to 25% of the shortfall, effective in 2023. 

Also effective in 2023, the Act establishes a two-year period to correct a failure to take a timely RMD distribution, with a resulting reduction in the tax penalty to 10%. Basically, if you self-correct the error by withdrawing the required funds and filing a return reflecting the tax during that two-year period, you can qualify for the lower penalty tax rate.

3. Elimination of Lifetime RMDs from Roth Employer Accounts 

A Roth IRA owner has never had to take RMDs from the Roth IRA while he or she is alive. (Distributions to beneficiaries are required after the Roth IRA owner’s death, however.) The same has not been true for Roth employer plan accounts, including Roth 401(k) and Roth 403(b) accounts. Plan participants have been required to take minimum distributions from these accounts upon reaching their RMD age or avoid the requirement by rolling over the funds in the Roth employer plan account to a Roth IRA.

That will change in 2024, the SECURE 2.0 legislation eliminates the lifetime RMD requirements for all Roth employer plan account participants, even those participants who had already commenced lifetime RMDs. (Any lifetime RMD from a Roth employer account attributable to 2023, but payable in 2024, is still required.)

4. New Spouse Beneficiary Options for Employer Plans

Beginning in 2024, the SECURE 2.0 legislation provides that when a participant has designated his or her spouse as the sole beneficiary of an employer plan, a special option is available if the participant dies before required minimum distributions have commenced. 

Similar to the already existing provision that allows a surviving spouse who is the sole designated beneficiary of an inherited IRA to elect to be treated as the IRA owner, this new provision from SECURE 2.0 legislation will permit a surviving spouse to elect to be treated as the employee. This will generally allow a surviving spouse the option to delay the start of required minimum distributions until the deceased employee would have reached the appropriate RMD age, or until the surviving spouse reaches the appropriate RMD age, whichever is more beneficial. This will also generally allow the surviving spouse to utilize a more favorable RMD life expectancy table to calculate distribution amounts.

5. New Annuity Option Flexibility 

Starting in 2023, the SECURE 2.0 legislation makes specific changes to the required minimum distribution rules that allow for some additional flexibility for annuities held within qualified employer retirement plans and IRAs. Allowable options may include:

• Annuity payments that increase by a constant percentage, provided certain requirements are met
• Lump-sum payment options that shorten the annuity payment period
• Acceleration of annuity payments payable over the ensuing 12 months
• Payments in the nature of dividends
• A final payment upon death that does not exceed premiums paid less total distributions made

These are just five of the nearly 100 provisions in the SECURE 2.0 legislation. The rules regarding required minimum distributions are complicated. Though we have described the changes here that will provide significant benefit to individuals, the rules remain difficult to navigate, and you should consult a tax professional to discuss your individual situation.

1 A technical correction is needed to clarify the transition from age 73 to age 75 for purposes of the required minimum distribution rule. As currently written, it is unclear what the correct starting age is for an individual born in 1959 who reaches age 73 in the year 2032.

It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits beyond those available through the tax-deferred retirement plan. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals prior to age 59½ may be subject to a 10% federal tax penalty.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

The post 5 Changes to Know About Required Minimum Distribution Rules in 2023 appeared first on Scott White Advisors - Financial Planners.

How to Protect Your Financial Health from IRS, Bank, and Medical Scams

by A. Scott White, CFP® , ChFC® , CLU®
President, Scott White Advisors

With the advancement of technological systems, scams are more sophisticated today compared to a few years ago because of the record amount of data available on the “dark web” for scammers to access and use. Nerdwallet notes that these criminals are particularly active during the tax filing system, so it is important to remain vigilant. Here are some of the latest scams that have bilked unsuspecting people out of money.

1–You get a call from someone claiming to be with Medicare.

They are calling to verify your Social Security number so your new card can be issued, and say you must pay for the new card via credit card or wire. Be aware that there is no fee for a new Medicare card and no action that beneficiaries need to take to receive them. Furthermore, a legitimate Medicare representative will never ask for personal information via phone or email, and official correspondence from Medicare is sent via U.S. mail. Medicare fraud can be recognized and reported on their official site.

2–You get a call from someone posing as a technical support representative

Often, this person will pose as a representative with the company that manufactured your computer. The rep says your computer has a virus that must be fixed immediately or you will lose all your data forever. He sends you a link to log into so he can access your computer remotely. Be aware that giving remote access to anyone will allow the entire contents of your computer—and your confidential information—to be copied. These representatives should not be calling you unless you have called first for assistance.

3–You get a call from someone claiming to be with the Internal Revenue Service.

He tells you there is a problem with your tax return and you could be liable to pay thousands of dollars. He tells you to give him a credit card number immediately or you will be arrested. There are a variety of IRS scams, which are helpfully updated and detailed on their site. Be aware: “The IRS doesn’t initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information.”

4–You get a text message from your bank telling you there is a problem with your account.

The message says your account has been locked for security reasons and you need to provide details such as your account number, password or PIN to unlock it. You are instructed to click on a link to a website. Be aware that financial institutions like credit unions and banks will never ask you to reveal security details such as your PIN or password over the phone or via text.

5–You get a message about COVID-19 related services

Both the IRS and Medicare systems have seen an increase in scams related to the novel coronavirus. In these cases, scammers will often offer Covid-19 services and benefits in exchange for personal information. In particular, these scams tend to target older audiences who may be more at risk of being affected by the virus. According to the Office of the Inspector General, “these services are unapproved and illegitimate.”

How can you protect yourself and your data from Scammers?

• Assume that every call or text is a scam. Ask probing questions – including about their HSPD-12 card, which every real IRS agent is required to have – and give them inaccurate information, such as the wrong name of the city you live in.
• Ask for the caller’s name and extension number and say you will call them back. Do not call the number the caller gives you; instead, call the number on the company website IF you already have a relationship with the company.
• Search the internet by typing in “X (name of company) scam” and see what comes up. You may find that other people have been scammed.
• Hang up and file a consumer complaint with the Federal Trade Commission at www.ftc.gov/complaint

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Raymond James is not affiliated with any of the external organizations mentioned. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Scott White Advisors and not necessarily those of Raymond James.

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

The post How to Protect Your Financial Health from IRS, Bank, and Medical Scams appeared first on Scott White Advisors - Financial Planners.