Happy New Year! I hope you have enjoyed the festivities and have spent some quality time with people you love! The holiday season (and craziness) is always extended for me because Lunar New Year takes place anywhere from mid January to Late February. We just celebrated it this past weekend and enjoyed a lot of good food and good company. Now back to reality!
New Year has always meant new beginning. In this newsletter, I would love to share some tips and motivation for you to get started on the financial planning tasks (or anything else) that you have been putting off. The second article talks about some of the changes coming from SECURE ACT 2.0. Hope you enjoy them!
Are You Ready To Take Control Of Your Money in 2023?
The turn of the year always brings renewed energy and motivation. It is a traditional time to self-reflect, introspect, and embrace new possibilities.
Has "managing my personal finance" been something on your resolution list year over year? Let's make 2023 the year that we actually get it done!
When people tell me that they want to get started with their financial plan, it's usually not the nitty-gritty planning tasks that they're looking forward to. Instead, it's the sense of freedom and control. For many people, the details of actually creating a financial plan to get there can be overwhelming and daunting. That's why "managing personal finance" is such a frequent repeat on new year resolution lists year after year.
It's completely understandable. It's not until recently that personal finance has been brought into part of the curriculums of some high schools around the country. Traditionally, schools have prepared us better for solving differential equations than doing taxes. Guess which one is actually used more frequently in real daily lives?
To help you with that, here are my tips to keep pushing you forward in this journey.
Taking small, manageable steps. Start by setting realistic goals and breaking them down into smaller, actionable tasks. What tend to take up your mental space? Start from there! It’s easy to get ambitious and take on too much. There’s nothing wrong to just start with very basic things like tracking your expenses.
Practice self-compassion. It's crucial to treat yourself with kindness and to shift your perspective from guilt or dread to a feeling of accomplishment after completing even small steps towards your goal. It's common to fall into negative self-talk and feelings of failure when tackling something that has been avoided for a long time, but it's vital to remind yourself that small progress is still progress.
Recruit an accountability partner. No matter how disciplined we are, it never hurts to have someone you trust to hold you accountable. This person can be a friend, family member, or a financial planner. An accountability partner can help you stay focused on your objectives, provide constructive feedback, and offer support during difficult times. When you are celebrating the accomplishment, they can be there to celebrate with you as well!
Don't let fear or procrastination hold you back from achieving your financial goals in 2023. Remember, small steps lead to big progress. Take the first step today and start working towards a brighter financial future. You can do it!
SECURE ACT 2.0 Update
If you haven’t heard of SECURE ACT 2.0 yet, it’s a new law that has quite a few financial planning implications that was just passed end of December in 2022. Very new! While some portion of the law has already gone into effect as of today, the majority of the law will be implemented in 2024 and after. It creates some interesting planning opportunities, especially with 2018 Tax Cuts and Jobs Act (TCJA) sunsetting in 2025.
Here’s brief summary on select changes from SECURE Act 2.0 that are the most relevant to people that I work with.
Business retirement plans
SIMPLE Roth IRAs and SEP Roth IRAs Previously, SIMPLE and SEP IRAs only allowed pre-tax contribution. With the new law, after-tax contribution will be allowed in these plans.
Increased tax credit to set up retirement plan for small businesses Under previous laws, small business would receive up to 50% of the start up cost for their workplace retirement plans as tax credit. The new law is updating the tax credit to 100%. This only applies to small businesses with fewer than 50 employees
Student Loan Payment Matching Starting in 2024, employees’ student loan payment will be treated as an elective deferral to qualify employees to receive employer matching.
529 plans
529 Plan to Roth IRA transfer allowed Starting in 2024, people can transfer up to $35,000 lifetime maximum from a 529 plan to Roth IRA if the Roth IRA is in the name of the beneficiary (not owner) of the 529 plan. The plan would also have to have been established for more than 15 years to qualify. Previously, 529 plan usage was more restricted to only education expenses with no transferability to other accounts.
RMD
RMD pushed back Required Minimum Distribution (RMDs) pushed back from 72 to 75 for people born in 1960s or later.
No RMD for employer sponsored Roth accounts Previously, employer sponsored Roth accounts still required RMD. Starting from 2024, that will no longer be the case for employer sponsored Roth accounts such as Roth 401(k)s, Roth 40b), etc.
Source: Kitces.com finance.senate.gov
As the changes get implemented, I’ll also share with you all some planning tips for these new laws in the future.
Cheers!
Lei Deng, CFA, CFP®
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