Understanding your Tax Return: Why Adjusted Gross Income Matters

Contributed by: Robert Ingram, CFP®

Tax Filing season is officially underway for the 2022 tax year returns. If you find yourself feeling a little extra stress or anxiety during this time, you are not alone. The U.S. tax code is undoubtedly complicated (that may be the understatement of the year), and your main focus is simply trying to get to the bottom line: how much do I owe, or how much am I getting back as a refund? Sound familiar?

As you are completing and reviewing your tax return, some other line items on your return (in addition to the bottom line) are worth looking at a bit more closely. In particular, your Adjusted Gross Income (AGI) may seem like just a number on the way to calculating your taxable income, which then determines your tax bill. And while that is true, your AGI is also used to determine eligibility for a number of different tax deductions, tax credits, and even retirement plans. It is also used to determine things like Medicare premiums, the amount of taxable Social Security benefits, and whether you may be subject to an additional tax on investment income.  

What is Adjusted Gross Income?

Simply stated, your Adjusted Gross Income is your total income minus certain types of…well, adjustments.  

This total income would be your gross income that combines a wide range of items, including things like W2 wage income and certain types of employer benefits, business income, Social Security benefits, pension and retirement plan distributions, investment income, capital gains, and other applicable income.

Once your Total Income is determined you would still make other potential adjustments for items that can include self-employment SEP IRA, SIMPLE IRA, or other qualified plan contributions, eligible Traditional IRA contributions, Health Savings Account contributions, eligible student loan interest, self-employed health insurance, alimony paid, and other adjustments. 

Why Adjusted Gross Income (AGI) Matters

As mentioned, the AGI is a number on the way to determining your Taxable Income.  Potential deductions such as the standard deduction or the itemized deductions, for example, are applied to the Adjusted Gross Income amount.

The applicable tax rates are applied to the Taxable Income to determine your Tax amount (almost), after factoring in additional deductions and/or credits you may be eligible to include.

The result after subtracting and adding any of those items is the amount of your Total Tax.  

(A key point to remember here is that while tax deductions lower your income used to calculate your tax amount, tax credits reduce the actual tax amount itself dollar for dollar.)

Based on your total amount of tax withholding and tax payments you’ve made, plus any additional eligible tax credits (e.g. Additional child tax credit, American Opportunity credit, Earned income credit), you may have paid more than the calculated Total Tax amount or less than the Total Tax amount.  If you have overpaid, then you would expect a refund.  If you have paid less than the Total Tax, then you would owe additional tax.

AGI Determines Eligibility for Some Tax Deductions and Credits

Several tax deductions and tax credits you may be able to take advantage of are subject to different AGI limitations.

• If you itemize deductions, medical expenses above 7.5% of your AGI are deductible. Therefore, the lower your AGI, the easier it is for more of your medical expenses to clear that 7.5% hurdle to be deductible.

• Itemized charitable donations you can deduct in a tax year are capped at a percentage of AGI. For example, you can deduct cash gifts made to qualified public charities up to 60% of your AGI. Non-cash gifts to public charities, such as stocks, bonds, and mutual funds owned for more than one year, are up to 30% of AGI.  

If you have a year with large charitable gifts, in some cases it could actually benefit you to have a higher AGI so that the deductible ceiling is a larger dollar amount.  Now, any portion of charitable gifts exceeding the percentage of AGI limit is therefore not deductible for that tax year, but the potential tax benefit is not completely lost. 

The amount in excess of the AGI limit can carry forward for use in future tax years (for up to 5 years).  But remember, you would still need to itemize your deductions to take advantage of the amount carried over into those years.  This is something to factor in to your charitable giving and tax planning, particularly if you expect to take only the standard deduction in the future.

Part of the eligibility criteria for some tax credits is that Adjusted Gross Income cannot exceed certain amounts, depending on your filing status (i.e., single, married filing jointly, head of household, married filing separately). Some credits where this applies include:

• The Child and Dependent Care credit

• Elderly and Disabled Senior tax credit

• The Earned Income tax credit

Modified Adjusted Gross Income (MAGI)

Along with Adjusted Gross Income (AGI), another related term to get to know is your Modified Adjusted Gross Income (a.k.a. MAGI). Your MAGI is essentially your AGI with certain income and deductions added back into that figure. The IRS uses MAGI to determine if you qualify for a range of tax benefits and programs, separate from the deductions and credits using AGI mentioned earlier.   

For example, MAGI is used as a criteria to determine

• If Traditional IRA contributions are deductible

• If you are eligible to contribute to a Roth IRA

• If you are eligible for the Child Tax Credit

• If you qualify for the American Opportunity or Lifetime Learning education tax credits

• If you are eligible for Premium Tax Credits and savings applied to marketplace health insurance plans under the Affordable Care Act

• If you pay higher Medicare premiums due to having income above certain thresholds

What makes the MAGI complicated (and often confusing) is that it is not a separate line item shown on Form 1040 of the tax return. Instead, it is calculated and used where applicable when completing your tax return or by external programs using tax return information. Also, the specific calculation for MAGI can be different, depending on how it is used. Different eligibility items add back different deductions or types of exempt incomes in each of their definitions of MAGI. To illustrate this point, let’s look at a couple of specific examples.

In the case of determining if contributions to a Traditional IRA are deductible, MAGI is calculated by adding AGI plus the following items (as applicable):

• student loan interest deduction

• foreign earned income and housing exclusions

• foreign housing deduction,

• excluded savings bond interest used for higher education,

• excluded employer adoption benefits

On the other hand, for the purpose of determining any Medicare premium adjustments, the Social Security Administration uses MAGI calculated as AGI plus any tax-exempt interest earned. 

When determining your eligibility for these types of tax benefits or projecting your Medicare premium, it is important to know the Modified Adjusted Gross Income that applies to each one. For many people without a lot of the unique deductions or exempt income to add back, their MAGI will be very close to their AGI. However, being aware of both AGI and MAGI and how each is applicable can be very beneficial when doing proactive tax planning throughout the year, not only during tax filing season.  

The tax code is complex, and determining how tax-related items apply to your unique situation depends on many factors. These are important conversations to have with your financial planner and tax professional, so please don’t hesitate to reach out to us if you have questions. 

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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 the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Examples used are for illustrative purposes only.

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.

Maximizing your 401k Contributions: Nuances to Save you Money

Contributed by: Nick Defenthaler, CFP®, RICP®

When starting a career, we are always told to contribute at least the minimum needed to get the full company match in our 401k (typically between 4% and 8%, depending on how your plan is structured). “Never throw away free money!” is a phrase we use quite often with children of clients who are starting that first job out of college.

But what about those who are well established in their career and fully maximizing 401k contributions ($22,500 for 2023, $29,000 if you are over the age of 50)? They should not have to worry about not receiving their full employer match, right? Well, depending on how your 401k plan is structured at work, the answer is yes! 

Let me provide an example to explain what I am referring to:
Let’s say Heather (age 54) earns a salary of $325,000 and elects to contribute 18% of her salary to her 401k. Because Heather has elected to contribute a percentage of her salary to her 401k instead of a set dollar figure, she will max out her contributions ($29,000) by the end of June each year. Let us also assume that Heather receives a 5% employer match on her 401k – this translates into $16,250/yr ($325,000 x 5%). If Heather does not have what is known as a “true up” feature within her plan, her employer will stop making matching contributions on her behalf halfway through the year – the point at which she maxed out for the year and contributions stopped. In this hypothetical example, not having the “true up” feature would cost Heather over $8,000 in matching dollars for the year!

So, how can you ensure you receive the matching dollars you are fully entitled to within your 401k? 
The first step I recommend is reaching out to your benefits director or 401k plan provider and asking them if your plan offers the “true up” feature. If it does, you are in the clear – regardless of when you max out for the year with your contributions, you will be receiving the full company match you are entitled to. 

If your plan does not offer the “true up” feature and you plan on maximizing your 401k contributions for the year, I would strongly suggest electing to defer a dollar amount instead of a percentage of your salary. For example, if you are over 50, plan on contributing $29,000 to your 401k this year, and if you are paid bi-weekly, elect to defer $1,115.38 every pay period ($1,115.38 x 26 pay periods = $29,000). Doing so will ensure you maximize your benefit by the end of December and not end up like Heather, who maxes out by the end of June and potentially loses out on significant matching dollars.  

Subtle nuances such as the “true up” 401k feature exist all around us in financial planning, and they can potentially have a large impact on the long-term success of your overall financial game plan. If you have questions on how to best utilize your employer’s 401k or retirement savings vehicle, please don’t hesitate to reach out to us for guidance. 

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Examples are hypothetical and are not representative of every employer's retirement plan. Not all employers offer matching 401(k) contributions. Please contact your employer's benefits department or retirement plan provider for terms on potential matching contributions.

Any opinions are those of Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Roth vs. Traditional IRA – How Do I Decide?

Contributed by: Kali Hassinger, CFP®, CSRIC™

As April 18th approaches, many are focused on the deadline to gather information and file taxes. However, April 18th is also the deadline to make a 2022 IRA contribution! How will you decide between making a Roth or traditional IRA contribution? There are pros and cons to each type of retirement account, but there is often a better option depending on your current and future circumstances. The IRS, however, has rules to dictate who and when you can make contributions. 

For 2022 Roth IRA contribution rules/limits:

• For single filers, the modified adjusted gross income (MAGI) limit is phased out between $129,000 and $144,000 (unsure what MAGI is? Click here).

• For married filing jointly, the MAGI limit is phased out between $204,000 and $214,000.

• Please keep in mind that for making contributions to this type of account, it makes no difference if you are covered by a qualified plan at work (such as a 401k or 403b); you have to be under the income thresholds.

• The maximum contribution amount is $6,000 if you’re under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

For 2022 Traditional IRA contributions:

• For single filers who are covered by a company retirement plan (401k, 403b, etc.), in 2022, the deduction is phased out between $68,000 and $78,000 of modified adjusted gross income (MAGI).

• For married filers, if you are covered by a company retirement plan in 2022, the deduction is phased out between $109,000 and $129,000 of MAGI.

• For married filers not covered by a company plan but with a spouse who is, the deduction for your IRA contribution is phased out between $204,000 and $214,000 of MAGI.

• The maximum contribution amount is $6,000 if you’re under the age of 50. For those who are 50 & older (and have earned income for the year), you can contribute an additional $1,000 each year.

If you are eligible, you may wonder which makes more sense for you. Well, like many financial questions…it depends! 

Roth IRA Advantage

The benefit of a Roth IRA is that the money grows tax-deferred, and someday when you are over age 59 and a half, if certain conditions are met, you can take the money out tax-free. However, in exchange for the ability to take the money out tax-free, you do not get an upfront tax deduction when investing the money in the Roth. You are paying your tax bill today rather than in the future. 

Traditional IRA Advantage

With a Traditional IRA, you get a tax deduction the year you contribute money to the IRA. For example, if a married couple filing jointly had a MAGI of $200,000 (just below the phase-out threshold when one spouse has access to a qualified plan), they would likely be in a 24% marginal tax bracket. If they made a full $6,000 Traditional IRA contribution, they would save $1,440 in taxes. To make that same $6,000 contribution to a ROTH, they would need to earn $7,895, pay 24% in taxes, and then make the $6,000 contribution. The drawback of the traditional IRA is that you will be taxed on it someday when you begin making withdrawals in retirement. 

Pay Now or Pay Later?

The challenging part about choosing which account is suitable for you is that nobody has any idea what tax rates will be in the future. If you choose to pay your tax bill now (Roth IRA), and in retirement, you find yourself in a lower tax bracket, then you may have been better off going the Traditional IRA route. However, if you decide to make a Traditional IRA contribution for the tax break now, and in retirement, you find yourself in a higher tax bracket, then you may have been better off going with a Roth. 

How Do You Decide?

A lot of it depends on your situation. We typically recommend that those who believe they will have higher income in future years make ROTH contributions. However, a traditional contribution may make more sense if you need tax savings now. If your income is stable and you are in a higher tax bracket, a Traditional IRA may be the best choice. However, you could be disqualified from making contributions based on access to other retirement plans. As always, before making any final decisions, it is always a good idea to work with a qualified financial professional to help you understand what makes the most sense for you. 

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kali Hassinger, CFP®, CSRIC™ and not necessarily those of Raymond James.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. 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.

Important Information for Tax Season 2022

Contributed by: Lauren Adams, CFA®, CFP®

As we prepare for tax season, we want to keep you apprised of when you can expect to receive your tax documentation from Raymond James.

2022 Form 1099 Mailing Schedule

• January 31 – Mailing of Form 1099-Q and Retirement Tax Packages.

• February 15 – Mailing of original Form 1099s.

• February 28 – Begin mailing delayed and amended Form 1099s.

• March 15 – Final mailing of any remaining delayed original Form 1099s.

Additional Important Information

Delayed Form 1099s

In an effort to capture delayed data on original Form 1099s, the IRS allows custodians (including Raymond James) to extend the mailing date until March 15, 2023, for clients who hold particular investments or who have had specific taxable events occur. Examples of delayed information include:

• Income reallocation related to mutual funds, real estate investment, unit investment, grantor and royalty trusts, as well as holding company depositary receipts.

• Processing of original issue discount and mortgage-backed bonds.

• Expected cost basis adjustments including, but not limited to, accounts holding certain types of fixed income securities and options.

If you do have a delayed Form 1099, we may be able to generate a preliminary statement for you for informational purposes only, as the form is subject to change.

Amended Form 1099s

Even after delaying your Form 1099, please be aware that adjustments to your Form 1099 are still possible. Raymond James is required by the IRS to produce an amended Form 1099 if notice of such an adjustment is received after the original Form 1099 has been produced. There is no cutoff or deadline for amended Form 1099 statements. The following are some examples of reasons for amended Form 1099s:

• Income reallocation.

• Adjustments to cost basis (due to the Economic Stabilization Act of 2008).

• Changes made by mutual fund companies related to foreign withholding.

• Tax-exempt payments subject to alternative minimum tax.

• Any portion of distributions derived from U.S. Treasury obligations.

What Can You Do?

You should consider talking to your tax professional about whether it makes sense to file an extension with the IRS to give you additional time to file your tax return, particularly if you held any of the aforementioned securities during 2022.

If you receive an amended Form 1099 after you have already filed your tax return, you should consult with your tax professional about the requirements to re-file based on your individual tax circumstances.

You can find additional information here.

And Don’t Forget…

As you complete your taxes for this year, a copy of your tax return is one of the most powerful financial planning information tools we have. Whenever possible, we request that you send a copy of your return to your financial planner, associate financial planner, or client service associate upon filing. Thank you for your assistance in providing this information, which enhances our services to you.

We hope you find this additional information helpful. Please call us if you have any questions or concerns about the upcoming tax season.

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.

Your 1099 Overview

Contributed by: Nick Defenthaler, CFP®, RICP®

Tax season is in full swing, and 1099s are being developed and distributed by Raymond James and other brokerage firms. The two most common accounts clients own are retirement accounts (Roth IRAs, Traditional IRAs, SEP-IRAs, etc.) or after-tax investment/brokerage accounts (Joint brokerage account, individual brokerage account, trust brokerage account, etc.). Because retirement accounts and after-tax accounts are vastly different from a tax perspective, the 1099s that are generated will be much different as well. Let’s review the differences.

Retirement Accounts (Traditional IRAs, Roth IRAs, SEP-IRAs, 401k, 403b, etc.)

Retirement accounts produce what is known as a 1099-R. Yes, you guessed it – the “R” stands for retirement account! Because retirement accounts are tax-deferred vehicles, the IRS only cares about how much was withdrawn from the account and if there was any tax withheld on those distributions (the 1099-R is also accompanied by form 5498, which also shows any contributions to the retirement account). Because of the simplicity and what is captured on this tax form, I commonly refer to a client’s 1099-R as their “retirement account’s W2”. Given the tax-deferred nature of retirement accounts, portfolio income such as dividends, interest, and capital gains are completely irrelevant from a tax reporting standpoint. These income sources also do not play a role within the 1099-R, so far less accounting goes into producing the 1099-R. This means they are released early in the year – typically in late January/early February (around the same time most W2s are produced for those still working). For those over 70 ½ that have chosen to facilitate gifts to charity through their IRA by utilizing the Qualified Charitable Distribution or ‘QCD’ strategy (click here to learn more about QCDs), Raymond James now captures these gifts on the 1099-R to ensure your tax preparer is aware and factors them into your tax return.

After-Tax Investment/Brokerage Accounts (Trust accounts, joint accounts, individual accounts, etc.)

After-tax investment or ‘brokerage accounts’ are very different from retirement accounts regarding tax reporting. Because these accounts are funded with after-tax dollars and not held in a retirement account, there is no tax deferral. This means that income sources such as dividends, interest, and capital gains are taxable to clients each year – the 1099 produced for these accounts captures this data so your tax preparer can accurately complete your tax return each year. Within the 1099 summary, there are three common sections:

• 1099-Div: Reports dividends paid throughout the year

• 1099-Int: Reports interest paid throughout the year

• 1099-B: Reports capital gains or losses generated throughout the year

Unlike retirement accounts that are tax-deferred, dividends, interest, and capital gains/losses play a significant role within the 1099 because they are reportable on your tax return each year. Therefore, a significant amount of accounting from the various investments within your account is required to determine these figures captured on your 1099. Because taxes are not withheld in these accounts if distributions ever occur, withdrawals are not captured on these 1099s as they would be on a 1099-R. Given the extensive accounting that arises to ensure errors are not made on reportable income, the earliest these 1099s become available is typically mid-February. That said, it is quite common for many 1099s to be distributed closer to mid-March. Because of this, I recommend consulting with your tax professional to see if filing a tax extension is appropriate for your situation.

As you can see, there are important differences between these different tax reporting documents. Having a better understanding of each will make your upcoming tax season more manageable. If our team can be of help with your tax forms or any other areas, please feel free to reach out!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

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 Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

SECURE ACT 2.0 Is FINALLY Happening!

Contributed by: Kali Hassinger, CFP®, CSRIC™

For the last several months, we have been monitoring the possibility of a "Secure Act 2.0" being passed into legislation. The initial SECURE Act (which stands for Setting Every Community Up for Retirement) was passed in late 2019, and had far-reaching effects on Required Minimum Distributions, inherited retirement accounts, and expanded the ability to contribute to IRAs.

Throughout the year, there have been talks about additional legislation through the Secure Act 2.0 to further expand access to retirement savings for individuals, small-business employees, employees with student loans, and part-time workers. 

On Thursday, December 22nd, Secure Act 2.0 was pushed through as part of the $1.7 billion 2023 omnibus appropriations bill (which is a brief 4,000+ page read). Some of the key provisions contained in the bill include:

• Higher retirement plan catch-up limits beginning at age 60 and increasing each year of age. This will likely go into effect in 2024.

• Increasing the Required Minimum Distribution age to 73 in 2023, and eventually it will be increased to age 75 over several years.

• Requiring employers to auto-enroll new employees into their current 401(k) or 403(b) plans with an automatic contribution increase each year.

• The tax penalty for missing a Required Minimum Distribution will be reduced from 50% to 25%, with the future ability to reduce the penalty to 10% if the miss is corrected in a timely manner.

• The establishment of a “starter” 401(k) plan or 403(b) plan for employers that do not currently offer retirement plans.

• A 100% tax credit for employer matches in newly established employer retirement plans.

• Allowing student loan repayments to be treated as retirement plan contributions for company match purposes.

• Establishment of a retirement savings Lost and Found for those who have lost track of old retirement plans.

• A pension linked emergency savings provision.  These accounts must be held in cash and contributions (up to a maximum balance of $2,500) must be treated as retirement plan contributions for matching purposes. Distributions would be tax free.

• Emergency withdrawals up to $1,000 every 3 years, or until the previous withdrawal has been paid back, will be allowed from retirement plans.

• Part-time employees with 2 years of 500+ hours will qualify for retirement plan participation

• The ability to transfer some 529 funds to a Roth IRA in the 529 beneficiary’s name. The amount that can be transferred is subject to Roth IRA annual contribution limits with the lifetime transfer amount of $35,000. Roth IRA contribution income limits do not apply.  The 529 needs to have been established for 15 years.

Many of these updates will slowly go into effect over time, and we are continuing to actively monitor and research Secure Act 2.0 as details continue to emerge. We will provide additional information as it is available, but if you have any questions about how this could affect you, please contact your Financial Planner. We are always happy to help!

Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statement, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.

Blogs You May Have Missed (And Are Worth the Read!)

Contributed by: Center for Financial Planning, Inc.®

As we mentioned last week, Center team members have written an astounding 59 blogs in 2022! With that much content, it’s easy to miss some of our posts here and there. So, take a look at the list below for some of our Most Underrated Blogs of the Year. There just may be one that peaks your interest!

1. Harvesting Losses in Volatile Markets

Kali Hassinger, CFP®, CSRIC™ discusses several ways you can carry out a successful loss harvesting strategy during inevitable periods of market volatility.

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2. What Happens to my Social Security Benefit If I Retire Early?

Are you considering an early retirement? Kali Hassinger, CFP®, CSRIC™ explains how Social Security is one topic you'll want to check on before making any final decisions.

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3. How to Find the Right Retirement Income Figure for You

When it comes to your retirement income, you don't want to guess. Sandy Adams, CFP® shows you where you should start to develop the most accurate number for you.

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4. Why Retirement Planning is Like Climbing Mount Everest

Nick Defenthaler, CFP®, RICP® shares that our goal as your advisor is to help guide you on your journey - both up and down the mountain of retirement!

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5. New Guidelines May Help Retirees Retain More Savings

Josh Bitel, CFP® shares new RMD tables that now reflect longer life expectancies, which means a reduction in yearly required distributions.

The Results Are In…The Top Five Blogs of 2022

Contributed by: Center for Financial Planning, Inc.®

Over the course of 2022, Center team members have written an astounding 59 blogs on topics including retirement planning, market volatility, eldercare, and investment planning - just to name a few. The results are in, and here are our Five Most Popular Blogs to close out the year. Check out our list below to see how many you have read!

1. Is My Pension Subject to Michigan Income Tax?

In 2012, Michigan joined the majority of states in taxing pension and retirement account income. Nick Defenthaler, CFP®, RICP® reviews how these taxes can play a role in one's overall retirement income planning strategy.

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2. The “10-Year Rule” Update You Need to Know About

One of the details of the SECURE Act that many of us call the "10-year rule" may be changing slightly. Jeanette LoPiccolo, CFP® shares what you need to know.

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3. Strategies for Retirees: Understanding Your Tax Bracket

Michael Brocavich, CFP® describes the two simple strategies that could potentially help reduce the amount of tax due in retirement.

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4. The Basics of Series I Savings Bonds

With the inflation increase, Series I savings bonds have become an attractive investment. Kelsey Arvai, MBA shares what to consider before adding them to your portfolio.

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5. What is Retirees’ Biggest Fear?

It's not the fear of running out of money. Not the stock market either. Nor loneliness. Sandy Adams, CFP® tells you what it truly is.

New Retirement Plan Contribution and Eligibility Limits for 2023

Contributed by: Robert Ingram, CFP®

If you are planning your retirement savings goals for the New Year, you may be surprised by how much you can contribute to your retirement accounts in 2023. The IRS has increased the annual contribution limits for employer retirement plans and IRA accounts, as well as the eligibility limits for some contributions. With inflation in 2022 at a 40-year high, many of these increases are also some of the largest in decades. Here are some adjustments worth noting for 2023.

Employe retirement plan contribution limits (401k, 403b, most 457 plans, and Thrift Saving):

• $22,500 annual employee elective deferral contribution limit (increased from $20,500 in 2022)

• $7,500 extra "catch-up" contribution if over the age of 50 (increased from $6,500 in 2022)

• Total amount that can be contributed to a defined contribution plan, including all contribution types (e.g., employee deferrals, employer matching, and profit sharing), is $66,000 or $73,500 if over the age of 50 (increased from $61,000 or $67,500 for age 50+ in 2022)

Traditional, Roth, SIMPLE IRA contribution limits:

Traditional and Roth IRA

• $6,500 annual contribution limit (increased from $6,000 in 2022)

• $1,000 "catch-up" contribution if over the age of 50 remains the same

Note: The annual limit applies to any combination of Traditional IRA and Roth IRA contributions. (i.e., You would not be able to contribute up the maximum to a Traditional IRA and up the maximum to a Roth IRA.)

SIMPLE IRA

• $15,500 annual contribution limit (increased from $14,000 in 2022)

• $3,500 "catch-up" contribution if over the age of 50 (increased from $3,000 in 2022)

Traditional IRA deductibility (income limits):

Contributions to a Traditional IRA may be tax deductible depending on your tax filing status, whether a retirement plan covers you (or your spouse) through an employer, and your Modified Adjusted Gross Income (MAGI). The amount of a Traditional IRA contribution that is deductible is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For example,

Single

• Covered under a plan

  • Partial deduction phase-out begins at $73,000 up to $83,000 (then above this no deduction) compared to 2022 (phase-out: $68,000 to $78,000)

Married filing jointly

• Spouse contributing to the IRA is covered under a plan

  • Phase-out begins at $116,000 to $136,000 compared to 2022 (phase-out: $109,000 to $129,000)

• Spouse contributing is not covered by a plan, but other spouse is covered under plan

  • Phase-out begins at $218,000 to $228,000 compared to 2022 (phase-out: $204,000 to $214,000)

Roth IRA contribution (income limits):

Just like making deductible contributions to a Traditional IRA, being eligible to contribute to a Roth IRA depends on your tax filing status and income. Your allowable contribution is reduced ("phased out") as your MAGI approaches the upper limits of the phase-out range. For 2023 the limits are as follows:

Single

• Partial contribution phase-out begins at $138,000 to $153,000 compared to 2022 (phase-out: $129,000 to $144,000)

Married filing jointly

• Phase-out begins at $198,000 to $208,000 compared to 2020 (phase-out: $196,000 to $206,000)

You can contribute up to the maximum if your MAGI is below the phase-out floor. Above the phase-out ceiling, you are ineligible for any partial contribution.

Eligibility for contributions to retirement accounts like Roth IRA accounts also requires you to have earned income. If you have no earned income or your total MAGI makes you ineligible for regular annual Roth IRA contributions, using different Roth IRA Conversion strategies could be a way to move money into a Roth in some situations.

As we start 2023, keep these updated figures on your radar when reviewing your retirement savings opportunities and updating your financial plan. As always, if you have any questions about these changes, don't hesitate to contact our team!

Have a happy and healthy holiday season and a great start to the New Year!

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

Any opinions are those of Bob Ingram, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Conversions from IRA to Roth may be subject to its own five-year holding period. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals of contributions along with any earnings are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

Celebrities That Didn't Have Proper Planning

Contributed by: Matt Trujillo, CFP®

The importance of proper estate planning cannot be overstated, regardless of the size of your estate or your stage of life. Nevertheless, it's surprising how many American adults haven't implemented a plan. You might think that those who are rich and famous would be way ahead of the curve when it comes to planning their estates properly. Yet plenty of celebrities and people of note have passed away with inadequate or nonexistent estate plans.

Michael Jackson

The king of pop died in June 2009 with an estimated $600 million estate. Jackson had prepared an estate plan that included a trust. However, he failed to fund the trust with assets prior to his death — a common misstep when including a trust as part of an estate plan. While a properly created and funded trust generally avoids probate, an unfunded trust almost always requires probate. In this case, Jackson's trust beneficiaries had to make numerous filings with the probate court in order to have the judge transfer assets to the trust. This process added significant costs and delays and opened what should have been a private matter to the public.

Trusts incur upfront costs and often have ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax professionals before implementing such strategies.

James Gandolfini

When the famous Sopranos actor died in 2013, his estate was worth an estimated $70 million. He had a will, which provided for various members of his family. However, his estate plan didn't include proper tax planning. As a result, the Gandolfini estate ended up paying federal and state estate taxes at a rate of 55%. This situation illustrates that a carefully crafted estate plan addresses more than just the distribution of assets. With proper planning, taxes and other expenses could be reduced if not eliminated altogether.

Source: 2022 Wills and Estate Planning Study, Caring.com

Prince

Prince Rogers Nelson, better known as Prince, died in 2016. He was 57 years old, still making incredible music and entertaining millions of fans worldwide. The first filing in the Probate Court for Carver County, Minnesota, was by a woman claiming to be his sister, asking the court to appoint a special administrator because no will or other testamentary documents were filed. Since Prince died without a will, the distribution of his over $150 million estate was determined by state law. In this case, a Minnesota judge was tasked with culling through hundreds of court filings from prospective heirs, creditors, and other "interested parties." The proceeding was open and available to the public for scrutiny.

Barry White

Barry White, the deep-voiced soulful singer, died in 2003 without a will or estate plan. He died while legally married, although he'd been separated from his second wife for many years and was living with a long-time girlfriend. He had nine children, but because he had not divorced his wife, she inherited everything, leaving nothing for his girlfriend or his children. As a result, a legal battle ensued.

Heath Ledger

Formulating and executing an estate plan is important. It's equally important to review your documents periodically to be sure they're up to date. Not doing so could result in problems like those that befell the estate of actor Heath Ledger. Although Ledger had prepared a will years before his death, several changes in his life transpired after the will was written, not the least of which was his relationship with actress Michelle Williams and the birth of their daughter Matilda Rose. The will left nothing to Michelle or Matilda Rose. Fortunately, Ledger's family later gave all the money to his daughter, but not without some family disharmony.

Florence Griffith Joyner

An updated estate plan works only if the people responsible for carrying out your wishes know where to find these important documents. When Olympic medalist Florence Griffith Joyner died in 1998 at 38, her family couldn't locate her will. This led to a bitter dispute between her husband, Al Joyner, and Flo Jo's mother, who claimed her daughter had promised that she could live in the Joyner home for the rest of her life.

Feel free to contact your team at The Center with any questions about properly planning your estate. We're always happy to help!

Matthew Trujillo, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® A frequent blog contributor on topics related to financial planning and investment, he has more than a decade of industry experience.

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 the author and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Examples used are for illustrative purposes only.