What Every Retiree Should Know About the Step-Up in Cost Basis

What Every Retiree Should Know About the Step-Up in Cost Basis

Posted On July 6, 2026 By Scott Stratton, CFP(R), CFA In Estate Planning, Financial Planning, Retirement Planning /   No Comments

A plain-English guide to inherited assets, joint accounts, real estate, IRAs, Roth IRAs, and when taxes should influence investment decisions.

One of the questions I hear often is whether it makes sense to hold on to an appreciated investment simply to preserve a future step-up in basis. It is a smart question, because the step-up in cost basis is one of the most valuable tax benefits available under U.S. tax law. But the answer is more nuanced than many people realize.

A step-up in cost basis means that when someone dies, certain assets may receive a new tax basis equal to their fair market value on the date of death. Suppose you bought an investment years ago for $100,000 and it is worth $600,000 when you pass away. If you sold it during your lifetime, you would generally owe capital gains tax on the $500,000 gain. But if the investment is held in a taxable account until death and your heirs inherit it, their new basis may be $600,000. If they sold it soon after, there may be little or no capital gains tax on that prior appreciation.

That is an extraordinary benefit. It can eliminate decades of unrealized gains. It can simplify estate settlement. And in some cases, it can save a family tens or even hundreds of thousands of dollars. But it is also easy to overgeneralize. Not every account receives a step-up. Joint ownership can change the result. Community property rules matter only in specific situations. And sometimes the desire to preserve a future step-up causes investors to make poor portfolio decisions today.

Here are the key concepts I think retirees and pre-retirees should understand.

The Step-Up Applies to Taxable Accounts, Not Every Account

The first thing to understand is that the account type matters more than the investment itself. Investors often ask whether a stock, ETF, mutual fund, or bond receives a step-up. That is not really the right question. The better question is: what type of account owns the investment?

Appreciated investments held in a taxable brokerage account generally receive a step-up in basis at death. The same investment held inside a traditional IRA, 401(k), 403(b), pension plan, Roth IRA, or non-qualified annuity follows a different set of rules and generally does not receive a step-up in basis.

That distinction matters. The exact same S&P 500 ETF might receive a step-up if it is held in a taxable brokerage account, but not if it is held inside an IRA. In the IRA, the beneficiary inherits the retirement account rules, not the taxable brokerage account rules.

Traditional IRAs and employer retirement plans usually remain taxable to beneficiaries as distributions are taken. In other words, the beneficiary does not inherit a new basis that wipes out the embedded income tax liability. Non-qualified annuities also generally do not receive a step-up in basis. The owner’s investment in the contract carries over, while deferred earnings are generally taxable as ordinary income when withdrawn. A common mistake: leaving money to charity from a taxable account. No, leave the charity money from your IRA. They will not owe taxes on it, but your children or heirs would. And the money in the taxable account is better given to heirs who get a step-up.

Roth IRAs deserve special mention because they are different. A Roth IRA does not receive a step-up in basis, but in most cases it does not need one. Qualified Roth IRA withdrawals are already income tax-free. Under current law, many non-spouse beneficiaries have up to 10 years to fully distribute an inherited Roth IRA, which means they may be able to allow the account to continue growing tax-free for much or all of that period before taking tax-free withdrawals. For heirs, that might make a Roth IRA the most tax-efficient asset to inherit.

For more detail on inherited IRAs, the 10-year rule, spousal options, Roth IRAs, and required minimum distributions, see my article: Stretch IRA & Inherited IRA Rules (2026): RMDs, Grandfathering, Spousal & Roth Rules.

Real Estate Can Also Receive a Step-Up

The step-up in basis is not limited to brokerage accounts. Real estate is often where this rule becomes especially powerful. Think about a house a grandmother bought 50 years ago for $40,000 that is now worth $700,000. If she sells the home during life, there may be capital gains tax depending on her basis, improvements, and whether the home qualifies for the primary residence exclusion. If her heirs inherit the property at death, the tax basis may be adjusted to the date-of-death value, potentially eliminating decades of unrealized appreciation.

There is also a separate tax rule for primary residences. The primary residence capital gains exclusion allows a homeowner to exclude up to $250,000 of gain from income, or up to $500,000 for many married couples filing jointly, if the house was their primary residence for two of the prior five years. This is not the same thing as the step-up in basis. It is a separate lifetime exclusion that may apply when someone sells a qualifying primary residence while they are living.

Because these rules can interact in important ways, be careful before selling a home, moving out of a long-time residence, gifting part of the home, adding children to the title, or changing ownership. A well-intentioned title change can create tax consequences that are not obvious at the time.

I have a separate article on keeping track of home improvements and home basis here: Tracking Your Home Improvements.

Your State Matters for Joint Accounts

State law is especially important when married couples own appreciated assets jointly. If an asset is individually owned, the community property versus common law distinction is generally not the main issue. But for joint accounts, it can make a significant difference.

Most states are common law states. In a common law state, jointly owned property between spouses generally receives a step-up on only the deceased spouse’s half of the account. The surviving spouse’s half typically retains its original basis.

Community property states are different. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska also allows couples to elect community property treatment in certain circumstances. In community property states, qualifying community property generally receives a full step-up in basis when the first spouse dies. That means both halves of the community property may receive a new basis, not just the deceased spouse’s half.

This is a major advantage for married couples in community property states, but the account title and legal character of the property still matter. A generic joint account title may not necessarily preserve community-property treatment in the way the couple expects. The optimal registration may be Community Property with Right of Survivorship when available and appropriate, because it can combine probate avoidance with the potential for a full step-up in basis.

In common law states, Joint Tenants with Right of Survivorship is commonly used because the account passes automatically to the surviving spouse and avoids probate. But from a basis standpoint, it generally results in only a partial step-up. Tenants in common may have different estate planning consequences because the deceased owner’s share may pass under a will or trust rather than automatically to the surviving owner. A Transfer on Death designation can also avoid probate while preserving individual ownership during life.

Be Careful With End-of-Life Retitling

When one spouse is terminally ill, it may be appropriate to review how appreciated taxable assets are owned. In a common law state, if the terminally ill spouse owns an appreciated taxable account individually and the surviving spouse is named as the Transfer on Death beneficiary, the entire account may receive a step-up in basis at death. By contrast, a jointly owned account may receive only a partial step-up.

That planning opportunity is real, but it is not as simple as transferring everything to the less healthy spouse at the last minute. There is an important one-year anti-abuse rule under Section 1014(e). In simplified terms, if appreciated property is gifted to a person within one year of death and then passes back to the original donor, or the donor’s spouse, the step-up may be denied for that property. This rule is designed to prevent someone from transferring appreciated assets to a dying person solely to reacquire them with a new basis.

That does not mean ownership planning is off the table. It means it must be done carefully, with the estate planning attorney and tax advisor involved. The right approach depends on who currently owns the asset, whether the transfer is a gift, how long the asset is held, who will inherit it, whether a trust is involved, creditor issues, Medicaid considerations, and state property law.

The lesson is not that retirees should avoid end-of-life basis planning. The lesson is that these decisions are too important to handle casually. A few minutes spent reviewing titling can create a major tax benefit, but a poorly executed title change can also create the opposite result.

Do Not Add Children as Joint Owners Just to Avoid Probate

One of the worst ideas is adding an adult child as a joint owner on a brokerage account or home to make things easier after death. It sounds simple. The child can help pay bills. The account avoids probate. Everyone assumes it is harmless.

But adding a child as a joint owner can create tax and legal problems. If the child becomes a current owner, part of the asset may no longer receive the full step-up at the parent’s death. There may also be gift tax reporting issues, creditor exposure, divorce exposure, family conflict, and loss of control. In many cases, a Transfer on Death designation, beneficiary designation, revocable living trust, or properly drafted estate plan can accomplish the same probate-avoidance goal without giving up the tax benefits of retaining ownership until death.

This is one of those areas where the simplest-looking solution is not always the best one. Probate avoidance is important, but it should not be pursued in a way that accidentally creates a larger capital gains problem for the family.

The Tax Cost of Selling an Appreciated Investment

Of course, the step-up in basis is only relevant if you hold the asset until death. Sometimes selling during life is the better decision. Before realizing a large gain, we evaluate the complete tax picture, not just the federal capital gains rate.

Long-term capital gains are generally taxed federally at 0%, 15%, or 20%, depending on taxable income. Higher-income taxpayers may also owe the 3.8% Net Investment Income Tax. For individuals, this surtax generally becomes relevant when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. For Medicare beneficiaries, a large capital gain can also increase modified adjusted gross income enough to trigger higher Medicare Part B and Part D premiums through IRMAA. Because IRMAA is based on income from two years prior, a large gain this year can affect Medicare premiums in a future year. State income taxes may also apply.

That means the true tax cost of selling can be much more than a simple 15% capital gains rate. For one retiree, harvesting a gain might be very manageable. For another, the same sale might push them into NIIT, higher Medicare premiums, and a higher state tax bill. That is why these decisions should be modeled individually.

This is also why tax planning is such an important part of retirement planning. You can learn more in our Tax Planning for Retirees hub.

Do Not Let the Tax Tail Wag the Investment Dog

While taxes matter, they should not be the only consideration. Some investors hold on to concentrated stock positions, high-cost mutual funds, or weak investments because they do not want to pay capital gains tax. They are waiting for the step-up in basis to solve the problem someday.

That can be a reasonable strategy for someone with a short life expectancy and a well-diversified portfolio. But for a healthy 65-year-old, it may be a mistake. One or both spouses may live another 20 or 30 years. Over that time, a poorly diversified portfolio, excessive fees, or an underperforming investment can cost far more than the capital gains tax that was being deferred.

Avoiding a 15% capital gains tax today may feel good, but it should not be the sole reason to hold an investment for decades. The objective is not to minimize taxes at all costs. The objective is to maximize after-tax wealth over your lifetime while maintaining a portfolio that fits your goals, risk tolerance, income needs, and estate plan.

Investment decisions, withdrawal strategies, Social Security timing, Roth conversions, tax brackets, Medicare premiums, and estate planning all fit together. That is the heart of retirement income planning. You can explore those topics further in our Retirement Income Planning hub.

Putting It All Together

The step-up in cost basis is a powerful planning tool, but it is not a magic rule that applies equally to every account and every situation. Taxable brokerage accounts and real estate may receive a basis adjustment at death. Retirement accounts and annuities generally follow different rules. Joint accounts may receive a partial or full step-up depending on state law and titling. End-of-life ownership changes can create opportunities, but they can also trigger traps if handled incorrectly.

For retirees and pre-retirees, the key is balance. It is wise to understand and preserve valuable tax benefits. It is also wise not to let a future tax benefit prevent you from making good investment decisions today. A strong financial plan should coordinate tax planning, portfolio management, retirement income, estate planning, and family goals.

As always, before making major changes to account ownership, selling highly appreciated investments, transferring real estate, or changing beneficiary designations, consult with your financial advisor, estate planning attorney, and tax professional. The rules are too important—and too fact-specific—to rely on general assumptions.

Read More
QSBS (Section 1202) A Tax Opportunity for Business Owners Planning to Retire

QSBS (Section 1202): A Tax Opportunity for Business Owners Planning to Retire

Posted On January 30, 2026 By Scott Stratton, CFP(R), CFA In Retirement Planning, Tax Strategies /  

If you own a business and expect to sell it to fund your retirement, taxes matter — a lot.

For some owners, Qualified Small Business Stock (QSBS) can significantly reduce federal capital gains taxes when the business is sold. In some cases, you may be able to sell your business for $10 million or more and pay zero income taxes.

QSBS is powerful — but only if your business is structured correctly years before the sale.

This article explains QSBS in clear, practical terms for business owners, not accountants.

What Is QSBS — In Simple Terms?

QSBS is a tax rule that rewards people who build and own certain U.S. businesses.

If your business qualifies and you follow the rules, some or all of the profit from selling your business may not be subject to federal capital gains tax.

Although the law talks about “stock,” most owners should think of QSBS as applying to the sale of your business — whether that sale is to a buyer, private equity firm, or another company.

The One Rule That Matters Most: You Must Be a C-Corporation

To qualify for QSBS, your business must be structured as a C-Corporation. If your business is currently: an LLC, an S-Corporation, or a partnership, it does not qualify today.

The Planning Opportunity for 2026

Here’s the part many owners miss:

You can convert your business to a C-Corporation now, start the QSBS clock, and potentially sell the business tax-efficiently in the future.

For example:

  • Convert to a C-Corp in 2026
  • Operate as a C-Corp for several years (at least 3-5 years)
  • Sell the business later — often around retirement

QSBS is not retroactive. The clock starts when the C-Corp issues its shares. That’s why early planning matters, especially for owners who are 5–10 years from selling.

How Long Do You Have to Own the Business?

The required holding period depends on timing.

Older Rules

Historically, owners needed to hold the business more than five years to receive the full QSBS benefit.

New Rules (Effective for New Stock After July 4, 2025)

Under updated law:

  • Selling after 3 years may qualify for a 50% partial tax benefit
  • Selling after 4 years increases the benefit to 75%
  • Selling after 5 years provides the maximum benefit of 100%

This adds flexibility for owners whose retirement timelines may change.

How Much Tax Can QSBS Save?

If the new rules are met, QSBS may allow you to exclude up to $15 million of gain per owner from federal capital gains tax (subject to limits and specifics). For shares issued before July 2025, the limit is $10 million.

That can:

  • Reduce the tax impact of selling your business
  • Leave more capital available for retirement income
  • Lower exposure to surtaxes and Medicare premium surcharges

QSBS often fits naturally into broader Retirement Tax Planning discussions.

One Owner vs. Multiple Owners

Single-Owner Businesses

For solo owners, QSBS planning can be relatively straightforward:

  • Convert to a C-Corp
  • Hold long enough (ideally at least 5 years)
  • Sell the business
  • Potentially exclude all or a meaningful portion of the gain

Many owner-operators and founders fall into this category.

Businesses With Multiple Owners

Each owner is evaluated individually.

That means:

  • Each owner may qualify for their own QSBS exclusion
  • Ownership percentages and timing matter
  • Good planning can multiply the tax benefit across partners

This is especially relevant in closely held or family-owned businesses.

Can You Sell to a Partner or Employee?

Usually, QSBS works best when the business is sold to an outside buyer.

Selling your ownership directly to a business partner or an employee often does not qualify automatically for QSBS treatment. That said, some internal transitions can be structured carefully — but they require advance planning and coordination with tax and legal advisors.

If an internal sale is your expected exit, QSBS may still be part of the discussion, but it’s not guaranteed.

What Types of Businesses Typically Qualify?

QSBS generally applies to operating businesses, not investment vehicles.

Often eligible:

  • Manufacturing
  • Technology
  • Distribution
  • Construction
  • Certain service businesses

Often excluded:

  • Real estate holding companies
  • Investment, insurance, or financial businesses
  • Professional services such as law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or athletics. 
  • Other businesses where personal reputation is the primary asset

Why QSBS Matters for Retirement Planning

For many business owners, selling the company is:

  • Their largest financial event
  • The primary source of retirement funding

QSBS can:

  • Improve after-tax sale proceeds
  • Support sustainable retirement income planning
  • Reduce pressure around timing income and taxes

This often connects directly to:

Final Thought

QSBS is not a last-minute strategy.

If you’re thinking about selling your business in the next several years, 2026 may be an important planning window to ask:

  • Should my business be a C-Corporation?
  • Does QSBS align with my retirement timeline?
  • What are the tradeoffs today versus future tax savings?

If you’re a business owner approaching retirement and want to understand how a future business sale fits into your broader tax and retirement plan, you’re welcome to request an introductory conversation. These discussions are educational and focused on planning — not products or performance.

Read More
Can You Use The ACA to Retire Early in 2026

Can You Use the ACA to Retire Early in 2026?

Posted On January 5, 2026 By Scott Stratton, CFP(R), CFA In Retirement Planning /  

You can sometimes retire before age 65 if you smartly plan your health coverage and income — but 2026 brings important changes to ACA marketplace subsidies you need to understand.
For many early retirees with $500,000–$5 million in investable assets, avoiding surprise medical costs is essential to making a retirement plan work.

How ACA Premium Tax Credits Work (2026)

In 2026, the Affordable Care Act (ACA) still offers Premium Tax Credits (PTCs) to help reduce the cost of health insurance — but the enhanced subsidies that made them extremely generous during 2021-2025 have expired.
Under the basic ACA rules:

  • Premium tax credits are available for households with incomes between 100% and 400% of the Federal Poverty Level (FPL), adjusted for household size.
  • For 2026 coverage (based on 2025 poverty guidelines), the 100–400% FPL income ranges are approximately:
Household Size100% FPL400% FPL
1 person$15,650$62,600
2 people$21,150$84,600
3 people$26,650$106,600
4 people$32,150$128,600

The Premium tax credits are based on a sliding scale of expected premium contributions as a percentage of income. The lower your income, the higher your credit.

Important change for 2026:
The enhanced subsidies that lowered required contributions and removed the 400% income eligibility cap expired on December 31, 2025. This means ACA premiums are generally less subsidized in 2026 than they were in 2021-2025, and many early retirees who expected very low premiums are seeing higher premiums in 2026.

What the Subsidy Changes Mean in Practice

Higher Premiums Unless Expected Income Is Low

The enhanced tax credits made ACA plans very affordable in recent years, sometimes resulting in zero premiums for middle-income households. Those enhancements are no longer in effect for 2026 coverage unless Congress renews them.

Without enhancements, a household above 400% of FPL (~$84,600 for two people) typically does not qualify at all for premium tax credits. This means early retirees who once qualified for substantial subsidies may now face steeper costs in 2026 — a factor you must include in retirement income planning.

Managing income during early retirement requires careful coordination, which is why ACA planning fits naturally into a broader retirement income planning framework.

How ACA Coverage Can Still Support Early Retirement

Even with subsidy changes, the ACA can be part of an early retirement transition if you strategically manage your income until after the year you turn 65. Even though the credits end the month you turn 65 and enroll in Medicare, the PTCs are based on your full year household income.

1. Control Your Modified Adjusted Gross Income (MAGI)

Premium Tax Credits are based on MAGI. To maximize your credit, you have to minimize your MAGI. What counts towards your MAGI?

  • Income from wages, Social Security, and pensions
  • Interest and Capital Gains
  • IRA and 401(k) Distributions
  • Roth Conversions

What does not count towards your MAGI? Where can you access money for expenses?

  • Roth IRA and Roth 401(k) Distributions are non-taxable
  • You can use Health Savings Account (HSA) withdrawals to pay for deductibles and out of pocket expenses. It’s a great idea to build up an HSA in advance of retirement. You cannot, however, use an HSA to pay for insurance premiums, except while you are receiving unemployment benefits.
  • Build up cash reserves in a taxable account to avoid taking taxable distributions or starting SS or Pensions.

2. Delay Higher Income Events Where Possible

If possible:

These steps may keep you within ACA income eligibility in the early years of retirement. It is important, however, that your income is not Zero – if your income is below 100% of the Poverty Level, you are eligible for Medicaid, but not a Premium Tax Credit.

Beware of Premium Increases

According to recent estimates, ACA marketplace premiums could climb substantially in 2026 as insurers adjust to the expiration of enhanced credits, with some plans more than doubling in net cost for enrollees who no longer receive enhanced subsidies.

What This Means for Early Retirement Planning

You should never assume ACA coverage will be inexpensive without modeling the impacts of subsidy changes, premium costs, and your projected income.
A retirement plan that works on paper without considering healthcare costs may fall short if ACA premiums rise faster than expected.

Because healthcare costs can be a substantial expense, many early retirees integrate ACA planning with:

This holistic view ensures you’re not derailed by unexpected healthcare expenses. Early retirement income planning requires careful coordination between healthcare subsidies, taxes, and withdrawals.

How a Fiduciary Advisor Helps

At Good Life Wealth Management, we integrate ACA health cost planning into your broader retirement strategy. That means:

  • Considering ACA premiums based on your projected MAGI
  • Incorporating subsidy eligibility changes under current law
  • Coordinating retirement income sources with health coverage needs

We work with pre-retirees and retirees with $500,000–$5 million, nationwide and remotely, so you can build a plan that realistically supports early retirement. You might also find our Who We Help and Questions to Ask a Financial Advisor pages helpful if you’re evaluating guidance options.

This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

Can I still get ACA subsidies if I retire before age 65?
Yes — if your income falls between 100% and 400% of the Federal Poverty Level, you can still qualify for premium tax credits under the ACA in 2026, though benefits may be smaller than they were with enhanced subsidies.

What counts as income for ACA eligibility?
Income for ACA subsidies is your modified adjusted gross income (MAGI) — including traditional IRA/401(k) distributions, but excluding Roth IRA withdrawals if qualified and certain other tax-free sources. Good Life Wealth Management

Read More
Why Baby Boomers Need A Financial Advisor

Why Baby Boomers Need a Financial Advisor

Posted On October 12, 2025 By Scott Stratton, CFP(R), CFA In Financial Planning, Retirement Planning /  

For baby boomers entering or already in retirement, financial decisions have never been more complex—or more consequential. You’ve worked a lifetime to build your wealth, and the stakes are high: protecting your savings, generating reliable income, managing taxes, and leaving a meaningful legacy. The challenge isn’t just growing assets—it’s using them wisely, sustainably, and with confidence.

At Good Life Wealth Management, we understand that investors between 55 and 75 face a unique set of financial questions that require expertise, objectivity, and proactive planning. That’s where partnering with a fiduciary financial advisor and Certified Financial Planner™ (CFP®) can make a measurable difference in your family’s financial well-being.

The Challenges Facing Affluent Pre-Retirees

For individuals and couples with $1 million to $5 million in investable assets, retirement planning is both an opportunity and a challenge. While you may have more financial flexibility than most, higher net worth also brings more complexity—and greater tax exposure. Here are the most common issues affluent pre-retirees face:

  1. Decumulation Strategy:
    You’ve spent decades accumulating assets. But when and how should you begin drawing from them? Without a plan, it’s easy to pay unnecessary taxes or deplete accounts too quickly. Coordinating withdrawals from taxable, tax-deferred, and Roth accounts requires precise planning to maximize after-tax income and longevity of assets.
  2. Tax Management and Roth Conversion Timing:
    The years between retirement and age 73 (when RMDs begin) often present the best window for Roth conversions and other tax-optimization strategies. A fiduciary advisor models these moves to minimize lifetime tax liability, not just this year’s return.
  3. Market Risk and Sequence of Returns:
    Even affluent retirees can face shortfalls if markets decline early in retirement. A thoughtful investment strategy—emphasizing risk management, income diversification, and behavioral discipline—can protect against that risk.
  4. Rising Health Care and Long-Term Care Costs:
    With health care inflation outpacing general inflation, even wealthy families must plan for potentially hundreds of thousands of dollars in out-of-pocket costs. A CFP® can help evaluate insurance options, long-term care funding, and how these expenses fit into your financial plan.
  5. Estate and Legacy Planning:
    The SECURE Act has changed how beneficiaries inherit IRAs, and tax laws are constantly evolving. High-net-worth families need coordinated strategies among their advisor, attorney, and CPA to preserve wealth and ensure an efficient, meaningful transfer to the next generation.
  6. Behavioral and Emotional Challenges:
    Many successful individuals are highly capable but still feel uncertain when managing large sums in retirement. The shift from saving to spending, and from working to living off your portfolio, can feel uncomfortable. A trusted fiduciary advisor provides reassurance through data-driven planning, transparency, and accountability.

Why Work with a Fiduciary Financial Advisor?

Not all financial professionals are required to act in your best interest. Brokers and agents may recommend products that pay higher commissions, even if they’re not ideal for you. A fiduciary advisor, on the other hand, is legally and ethically bound to act solely in your best interest—without product incentives or conflicts of interest.

At Good Life Wealth Management, our fiduciary standard means:

  • Objective advice. We recommend strategies because they fit your goals—not because of any outside incentive.
  • Fee transparency. Our compensation is clear, predictable, and aligned with your success.
  • Comprehensive oversight. We coordinate your investments, taxes, estate plan, insurance, and retirement income strategy under one cohesive plan.

The Value a CFP® Brings to Your Financial Life

A Certified Financial Planner™ brings a level of rigor and expertise that goes beyond investment management. CFP® professionals complete advanced training and adhere to strict ethical standards, focusing on every aspect of your financial well-being.

For baby boomers, that means:

  • Customized Retirement Income Planning: Creating a tax-efficient withdrawal strategy that provides predictable income without depleting principal too soon.
  • Investment Management Tailored to Your Goals: Balancing growth, income, and preservation through a disciplined, evidence-based approach.
  • Tax-Aware Portfolio Construction: Using asset location and tax-loss harvesting to improve after-tax returns.
  • Social Security and Medicare Optimization: Timing benefits strategically and avoiding costly IRMAA surcharges.
  • Charitable and Legacy Planning: Aligning your wealth with your values through donor-advised funds, QCDs, and trust structures.
  • Behavioral Coaching: Helping clients avoid emotional mistakes during volatile markets, maintaining focus on long-term goals.

Studies by Vanguard and Morningstar have shown that working with a professional advisor can add 3% or more per year in net returns through better behavioral discipline, rebalancing, and tax efficiency. But beyond numbers, the real value of a trusted advisor is peace of mind—the confidence that you’re on track and making wise decisions.

How a Fiduciary Advisor Simplifies Complexity

Affluent families often have multiple accounts, business holdings, or real estate investments. A fiduciary advisor serves as your financial quarterback, bringing everything together into one cohesive strategy.

  • We help you see the full picture—net worth, cash flow, taxes, and investments—in one plan.
  • We coordinate with your CPA and attorney to ensure that tax and estate decisions align.
  • We proactively adjust your plan as tax laws, markets, and life circumstances change.

This holistic approach ensures your wealth works efficiently for you today, while positioning your legacy for tomorrow.

The True Benefit: Financial Confidence and Freedom

Ultimately, the goal of financial planning isn’t just to accumulate wealth—it’s to create the freedom to live your best life. For baby boomers entering retirement, that means:

  • Knowing your income is secure regardless of market conditions.
  • Paying only the taxes you owe—and not a dollar more.
  • Protecting your spouse and family from uncertainty.
  • Having a clear legacy plan that reflects your values and priorities.

At Good Life Wealth Management, we believe your retirement years should be a time of clarity, not confusion; of confidence, not anxiety. Working with a fiduciary CFP® ensures that every financial decision is guided by your goals, your timeline, and your values.

Take the Next Step Toward Financial Clarity

If you’re approaching retirement or already there, now is the time to build a comprehensive plan. The right guidance today can make all the difference over the next 20–30 years.

We invite you to schedule a conversation with Good Life Wealth Management to see how our fiduciary, evidence-based approach can help you protect, grow, and enjoy your wealth with confidence.

Related Retirement Income Topics
– Retirement Income Planning
– Guardrails Withdrawal Strategy
– Social Security: It Pays to Wait
– Required Minimum Distributions
– What Is a MYGA?

Read More
Falling Interest Rates: Why MYGAs Belong in Your Portfolio

Falling Interest Rates: Why MYGAs Belong in Your Portfolio

Posted On September 23, 2025 By Scott Stratton, CFP(R), CFA In Financial Planning, Retirement Planning /  

The Federal Reserve cut the Fed Funds rate by 0.25% this week, with more reductions likely ahead. As inflation cools and employment weakens, bond yields are already dropping. This is a problem for retirees: many bonds are callable, meaning issuers redeem them early and reissue at lower rates. Investors who held 5.5% and 5% bonds are seeing them called and replaced with yields closer to 4%.

For retirees relying on bond income—or taking RMDs—this environment means lower expected returns from balanced portfolios. And with U.S. stocks expensive and possibly due for a correction, conservative investors should not depend on equities for stable income.

Enter the MYGA

A MYGA (Multi-Year Guaranteed Annuity) is a fixed-rate annuity that behaves like a CD but often pays more. MYGAs currently offer rates in the mid-5% range and unlike many bonds or CDs, they are non-callable. That means your rate is locked for the full term (3–10 years), even if market yields fall.

Benefits of MYGAs:

  • Guaranteed fixed rate of return, non-callable.
  • Principal protection—very safe.
  • Tax-deferred growth until withdrawal.
  • Option for tax-free rollover at maturity (1035 exchange).
  • Creditor protection in many states.
  • Nearly 2% higher than comparable 5-year Treasury (5.6% versus 3.7%).

The Fine Print:

  • Limited liquidity; surrender charges for early withdrawals.
  • Some MYGAs allow interest to be withdrawn, others none.
  • Withdrawals before age 59½ may face a 10% IRS penalty on earnings.
  • Best suited for investors with sufficient liquidity elsewhere.

Why MYGAs Belong in Portfolios Now

With rates expected to trend lower, locking in today’s 5%+ yields through a MYGA can secure income for years. A callable bond at 5.5% may vanish if rates fall, but a 5.5% MYGA will not. This makes MYGAs particularly attractive for retirees and conservative investors looking for income stability.

Strategies for Using MYGAs:

  • Fixed Income Replacement: Substitute part of your bond allocation with a MYGA to boost yield and avoid call risk.
  • Laddering: Buy multiple MYGAs with staggered maturities to improve liquidity and reinvestment flexibility.
  • RMD Support: Use MYGA interest or partial withdrawals to help cover RMDs without tapping into equities in down markets.

Is a MYGA Right for You?

If you’re over 59 1/2, have significant fixed-income holdings, and don’t need immediate access to these funds, a MYGA may be an excellent fit. For many retirees, locking in 5%+ guaranteed and tax-deferred is far more attractive than taking chances on callable bonds or expensive equities.

Read More
Extra Catch-Up for 2025

Extra Catch-Up Contributions for 2026

Posted On October 5, 2024 By Scott Stratton, CFP(R), CFA In Retirement Planning /  

Summary: For 2026, the IRS increased retirement plan and catch-up contribution limits for participants age 50 and over. There are now age-based catch-up tiers and income-based Roth catch-up requirements under SECURE 2.0. Understanding these updates helps in planning retirement contributions and tax-efficient saving.

How Catch-Up Contributions Work

Age-50+ catch-up contributions allow individuals age 50 or older by year-end to contribute above standard deferral limits in qualified retirement plans (401(k), 403(b), and some 457 plans) and IRAs. These extra contributions are designed to help older workers increase savings as retirement approaches.

2026 Contribution Limits

For tax year 2026, the IRS has updated limits and catch-up amounts as follows:

Employer-Sponsored Plans (401(k), 403(b), 457(b))

  • Standard deferral limit: $24,500
  • Age 50+ base catch-up: $8,000
  • Enhanced catch-up (ages 60-63): $11,250
    Total maximum when eligible: up to $35,750.

IRA Catch-Up Contributions

  • IRA contribution limit: $7,500
  • IRA age 50+ catch-up: $1,100
    Total IRA possible for age 50+: $8,600.

SIMPLE IRA Plans

  • Standard limit: $17,000
  • Age 50+ catch-up: $4,000
  • Enhanced (ages 60-63): $5,250 (for eligible plans)

New Roth Catch-Up Requirement in 2026

Under the SECURE 2.0 Act, beginning in 2026, higher-earning participants age 50+ must designate catch-up contributions as Roth (after-tax) once they exceed the regular deferral limit if their prior-year wages exceed a threshold (indexed; ~$150,000 for 2025 wages affecting 2026). This means such catch-up amounts are subject to taxation when contributed, not when withdrawn.

Why it matters: Some employers may require Roth catch-up contributions if plan design allows. If the plan does not support Roth contributions, some participants may not be able to take advantage of catch-up features.

Age-Based Catch-Up: Why It Matters

The IRS continues to recognize that workers closer to retirement often have a stronger need (and ability) to save more:

  • Age 50+ base catch-up: a general bump to allow additional contributions.
  • Age 60-63 enhanced catch-up: for those in their early 60s, acknowledging a shorter time horizon to retirement.

These age-based tiers remain even with the Roth designation rule for eligible higher earners.

Planning Considerations for Retirees

Tax Treatment

Traditional catch-up contributions have historically been pre-tax, lowering taxable income today. In contrast, Roth catch-up contributions are made after tax, meaning they won’t lower current taxable income but may grow tax-free in retirement if distribution rules are met.

Job and Wage Tracking

The ROTH-designation requirement is based on prior-year wages for the same employer. Changing jobs or varying wage sources may affect eligibility for pre- vs. after-tax catch-up contributions.

Interaction With Retirement Timing

Boosted catch-up limits can be useful for:

Frequently Asked Questions

Q: Do catch-up contributions count toward the annual limit?
Catch-up contributions are in addition to the regular elective deferral limit — they do not reduce the base deferral maximum.

Q: When do I qualify for catch-up contributions?
You qualify if you are age 50 or older by December 31 of the tax year. For enhanced catch-up, you must be ages 60-63 in that year.

Q: Will catch-up contributions affect my RMDs?
No — catch-up contributions impact saving limits but do not directly change Required Minimum Distributions (RMDs) or their timing. For discussion of RMD timing, see RMDs & Timing.

Q: Do SIMPLE IRA catch-ups work differently?
Yes — SIMPLE IRAs have their own catch-up rules and limits. They follow similar age-based tiers but different numeric caps.

Related Reading

Catch-up contributions can meaningfully affect your long-term retirement savings strategy, especially when combined with tax and income planning decisions. If you’d like a planning-first discussion of how the 2026 catch-up limits might fit into your personal retirement picture, you’re welcome to Request an Introductory Conversation.

Read More
What is a MYGA Annuity

What is a MYGA Annuity?

Posted On March 7, 2024 By Scott Stratton, CFP(R), CFA In Portfolio Management, Retirement Planning /  

How a fixed income annuity can provide guaranteed returns and predictable retirement income — especially for retirees in Texas, Arkansas, and nationwide.

A Multi-Year Guaranteed Annuity (MYGA) is a fixed-rate annuity that offers a guaranteed interest rate for a defined period — typically 1 to 10 years — making it a useful tool for retirees seeking predictable income or a safe place to grow cash. MYGAs are popular with conservative investors because they provide certainty in an uncertain market and can complement traditional retirement income sources.

How MYGAs Work (Straightforward Explanation)

A MYGA is an insurance contract in which you pay a lump sum upfront and the insurance company credits a fixed interest rate for a set term. Unlike market-linked investments, a MYGA offers stability — you know the rate and return ahead of time.

Here’s what this means:

  • You deposit a lump sum (often $5,000+; many competitive products start closer to $20,000+).
  • The annuity earns a guaranteed fixed rate for the term you choose (e.g., 3, 5, or 7 years).
  • Earnings grow tax-deferred until you withdraw them.
  • Upon maturity, you can take the money, renew into a new contract, or elect income payout options.

This makes MYGAs similar to CDs in principle — but with tax deferral and often higher rates.

Why Retirees Like MYGAs (Guaranteed Return and Safety)

MYGAs are especially appealing if you want:

  • Predictable, guaranteed interest income
  • Tax-deferred growth
  • A conservative portion of your retirement portfolio
  • Stability in a low-volatility product
  • Competitive Interest Rates: currently we offer a 5-year MYGA at 5.75%, a full 2% more than a 5-year Treasury Bond

Because returns are fixed, you don’t have to worry about market ups and downs affecting your principal during the contract term. For some retirees, guaranteed income products like MYGAs can complement laddered bonds and cash reserves within a well-structured retirement income planning strategy.

MYGA vs. CDs and Traditional Fixed Accounts

MYGAs are often compared to bank CDs, but there are important differences:

FeatureMYGABank CD
Rate GuaranteeGuaranteed by insurerFDIC/NCUA insured
Tax TreatmentTax-deferred earningsInterest taxed yearly
Income OptionsCan convert to incomeNo lifetime income option
LiquidityLimited, may have surrender chargesEarly withdrawal penalty
FlexibilityOptions at maturityLess flexible
Based on typical product characteristics

MYGAs are backed by insurance companies and state guaranty associations — not FDIC insurance — so the financial strength of the issuer matters.

How MYGAs Can Fit Into Retirement

MYGAs can provide predictable income or serve as a safe allocation within a broader retirement income plan. This can include:

🔹 Income Planning

If you want a fixed stream of interest income during early or established retirement, a MYGA can fill the gap between Social Security, pensions, or RMDs.

🔹 Laddering for Predictable Cash Flow

Buying MYGAs with staggered maturities ensures you can take money or reinvest at regular intervals — similar to a bond ladder.

🔹 Risk Reduction

Because returns are fixed, they provide stability in an otherwise volatile market.

For a deeper look at how MYGAs compare with other retirement tools, see our article on fixed annuities and retirement income strategy.

What You Should Know Before You Buy

MYGAs aren’t right for everyone. Key considerations include:

🔸 Liquidity and Surrender Charges

MYGAs typically have surrender periods during which withdrawals beyond a penalty-free amount may incur charges. Read the contract carefully.

🔸 Tax Considerations

Growth is tax deferred, but withdrawals are taxed as ordinary income. If you withdraw before age 59½, you may face a 10% IRS penalty on earnings.

🔸 Insurer Strength

Check the insurer’s ratings and the state guaranty association coverage limits.

These features underscore why it’s smart to work with a fiduciary who can match product features to your personal situation.

Why Consider a MYGA With Us (Texas, Arkansas & Nationwide)

If you’re a retiree seeking income — even if you’re not looking for full wealth management — MYGAs can provide competitive fixed income options with market-leading interest rates. Our access to top annuity carriers means clients in Texas, Arkansas, and across the U.S. can secure highly competitive rates and terms that align with their income goals.

We help you:

  • Evaluate options across multiple products and terms
  • Compare surrender periods, riders, and features
  • Make decisions aligned with your risk tolerance and income timeline

MYGAs can be a standalone retirement income solution or a component of a broader plan. Whether you want a safe place for excess cash or a predictable income stream, we can help you explore whether a MYGA fits your needs.

For broader retirement planning that addresses sequence of withdrawals, taxes, and longevity risk, check out our Retirement Income Strategy and our Who We Help pages.

Frequently Asked Questions

What rate can I expect on a MYGA in 2026?

Current competitive MYGA rates are about 5.75% for a 5-year and depend on term and issuer. These rates can be materially higher than traditional CDs or short-term bonds. They also vary quite a bit from insurer to insurer, so it can pay to have an independent agent who can shop around for the best rates and features.

Are MYGAs safe?

MYGAs are backed by insurance companies and state guaranty associations, not the FDIC. It’s important to review the issuer’s rating and the contract terms.

Can I use a MYGA for retirement income?

Yes. MYGAs can provide predictable income or supplement your other retirement income sources when structured appropriately.

Read More
Performance Chasing Versus Diversification

Performance Chasing Versus Diversification – A Retiree-Focused Perspective

Posted On January 25, 2024 By Scott Stratton, CFP(R), CFA In Behavioral Finance, Portfolio Management, Retirement Planning /  

Updated for 2026 — Planning-first language for retirees and pre-retirees

Many retirees and those approaching retirement find themselves checking account statements after a strong year in certain market segments — especially when one area (like large growth stocks) outperforms nearly everything else. The chart below, sourced from J.P. Morgan, vividly illustrates how the top-performing investment categories change from year to year (2008–2023), including U.S. stocks, developed and emerging markets, bonds, real estate, commodities, and cash.

Why Performance Chasing Is Especially Dangerous for Retirement Investors

When a particular category outperforms one year — and especially in hindsight when it “looks obvious” — it can be tempting to shift away from a broadly diversified portfolio into what just worked best. This behavior is known as performance chasing:

  • It treats recent winners as future winners, even though history shows that last year’s top performer often underperforms in subsequent years.
  • It increases the risk of selling diversified holdings after declines and buying into areas that have already risen substantially.

For retirees and pre-retirees, the stakes are higher than for many accumulators. Changing allocations based on recent performance can increase the risk of sequence-of-returns losses — when poor returns early in retirement can have an outsized impact on long-term spending sustainability.

Contrast this with diversification, where owning multiple asset categories — even ones that lag in the short term — tends to smooth returns and lower overall risk over the long run.

Past Performance Is Not Predictive — Especially Near Retirement

It’s common for investors to see a chart like the one above and think:

“I should sell my diversified portfolio and buy the top performer from last year.”

This is performance chasing — abandoning a long-term, diversified strategy because of recency bias. Over short spans, certain assets may shine, but over time, no single category consistently outperforms.

Diversified portfolios are structured so that gains in some areas weathers declines in others. While this means you won’t always be in the leading category each year, it also reduces the risk that you are overly concentrated in one bucket — particularly important when you are drawing down assets in retirement.

Valuations Matter — But Timing the Market Doesn’t Work

Behavioral biases often cause investors to equate strong recent results with future prospects. But valuation-based approaches focus on expected future returns rather than trailing returns — recognizing that:

  • Stocks or sectors that have outperformed may trade at higher valuations and offer lower expected future returns;
  • Investments that have lagged may be cheaper and offer relatively better expected returns.

For retirees, valuation focus ≠ market timing; it means aligning your portfolio with a disciplined, cost-effective, diversified strategy that doesn’t shift based on the latest hot sectors.

Reversion to the Mean — A Long-Term Reality

Over the long run, markets tend to drift back toward average performance levels. The original Vanguard projected return chart (unchanged here) shows this principle: asset classes with higher valuations often have lower expected future returns, while those with lower valuations may have higher expected returns.

Short-term leadership does not reliably predict long-term outcomes. A diversified portfolio owns multiple asset classes so that you benefit from broad market growth without betting on a single segment.

Why Diversification Matters for Retirees

For retirees and those preparing for retirement:

  • Diversification reduces portfolio volatility, which matters when you’re making regular withdrawals.
  • Diversification helps manage sequence-of-returns risk, the risk that early poor returns deplete your portfolio faster.
  • A diversified approach is more likely to deliver smooth, reliable outcomes that align with spending needs, not headlines.

If you want a primer on how diversified income flows and drawdown strategies interact in retirement, see our Retirement Income Planning Hub.

For a deeper look at the role diversification plays alongside tax planning and income sequencing, see our Retirement Tax Planning articles.

Related Retiree-Focused Content

If you’re nearing retirement or already retired, chasing last year’s top performer can undermine your long-term financial security. Staying diversified and disciplined helps align your investment approach with your income needs and risk tolerance. If you’d like a planning-first discussion about how diversification fits with your broader retirement strategy, you’re welcome to Request an Introductory Conversation.

Read More
US and French Social Security

US and French Social Security

Posted On April 14, 2023 By Scott Stratton, CFP(R), CFA In Retirement Planning /  

We are in Paris and several clients have reached out to make sure we are doing okay, given the demonstrations and riots regarding France’s retirement system. Yes, we are fine and actually never saw any of these events other than on the news. Day to day life in Paris is normal, and thankfully the garbage strike is over. It has been perfectly tranquil in our neighborhood and we are enjoying life in the city.

Why are the French upset? Currently, if you are 62 and have worked for 42 years, a French citizen can receive their full retirement benefit of 50% of the average salary of their highest paid 20 years of work. If you don’t have 42 years of contributions, you will receive less than 50%, or you can work for longer to increase your benefit up to 50%. So, if you had been making $60,000 (Euros actually), you could potentially retire at 62 with a $30,000 pension. Under the new rules, the full retirement benefit will not become available until age 64 with 43 years of work. There are some interesting parallels between US and French Social Security.

The French Connection

In a recent interview, France’s President Macron defended the changes, which have been enormously unpopular. Macron explained that the program has always been an entitlement program, where current benefits are paid by current taxes. It is not a personal savings or investment account. When Macron took office, there were 10 million retirees receiving benefits, out of France’s 67 million population. Today, there are 17 million retirees and that number will grow to 20 million by 2030. 20 million pensioners out of a total of 67 million people. There are 1.7 workers in France for each retiree.

1.7 workers cannot provide an average monthly benefit of 1300 Euros for each retiree. There are only two options, increase taxes or decrease benefits. France already has high taxes, 20% just for social programs (this also includes health insurance, unemployment, maternity benefits, and other programs). 14% of France’s GDP is just retirement pensions. France compared their program and expenditures to similar countries and recognized that their retirement age was too low, given how much longer people are living today.

Macron tried to work with representatives in their Parliament on a solution. But when no agreement could be reached, he issued an executive order to make the changes without a vote. He noted that he had to do what was in the country’s best interest in the long term and preserve the program for their children and grandchildren, even if it was not the most popular thing to do. I was impressed by his directness, intelligent explanation of a complex problem, and courage to do the right thing even when it is not easy or popular.

The US Conundrum

I’ve been writing about the problems facing US Social Security since 2008. Back then, the 2036 projected collapse of the Social Security Trust Fund seemed like a lifetime away. Today, Social Security projects that the Trust Fund will be depleted by 2033. At that time, taxes will only cover about 70% of promised benefits. And every year, the Social Security Trustees report tells us how much we need to increase taxes or decrease benefits to keep the program solvent for 75 years.

Unfortunately, over the last 15 years no changes have occurred. It has been political suicide for any politician to suggest reforming Social Security. The easiest attack ad has always been to say that your opponent wants to “take away your Social Security check”. So we keep on marching towards that cliff with no change in direction. Shame on our politicians for not being willing to save the foundation of our retirement.

When Social Security started, there were 16 workers for every retiree and the average life expectancy was 65. Today, there are 2.8 workers for every retiree and that ratio continues to shrink. The typical 65 year old, in 2023, will live for at least 20 years. Like in France, it doesn’t matter what “you paid into Social Security”. That’s not how the program ever worked. Current taxes pay current beneficiaries. Your past contributions were spent on your parent’s or grandparent’s check.

No Easy Solution

Compared to France, the US demographics may look better. However, France actually is running a smaller deficit on their retirement program – only a 10 Billion Euro average annual shortfall for the next decade. They actually ran a surplus in 2022 and are proactively making these changes looking forward to the decade ahead. They’re making changes before there is a deficit! (Social Security spent only $56 Billion of the Trust Fund last year, but this will accelerate and deplete the whole $2.8 Trillion over the next 10 years.)

For the US, if we we wait, it will magnify the size of the changes needed. It would be better to start today to save Social Security. We can either increase taxes or reduce benefits. Those are the only two options. No one wants to do either, so we have to reach a compromise.

Thankfully, there are actuaries at Social Security who study all proposals. Their annual report estimates how much of the shortfall could be reduced for each change. Here are some of their calculations, looking at the improvement of the long-range actuarial balance. (We should be looking for some combination which equals at least 100%.)

Impact of Possible Changes to US Social Security

  • Reduce COLAs by 1% annually: 56%
  • Change COLA to chained CPI-W: 18%
  • Calculate new benefits using inflation rather than SSA Average Wage Index: 80%
  • Reduce benefits for new retirees by 5% starting 2023: 18%
  • Wage test. Reduce SS benefits from 0-50% if income is $60k-180k single/$120k-360k married: 15%
  • Increase Full Retirement Age from 67 to 69 by 2034, and then increase FRA by 1 month every 2 years going forward: 38%
  • Increase the Payroll Tax from 12.4% to 16% in 2023: 103%
  • Eliminate SS cap and tax all wages: 58%
  • Eliminate SS cap, tax all wages, but do not increase benefits above the current law maximum: 75%
  • New 6.2% tax on investment income, for single $200k / married $250k: 29%

I don’t have an answer for what Washington will do. But we can look at what will actually work. And what is perhaps even more interesting is what doesn’t work. It is shocking, for example, that wage testing SS only improves the shortfall by 18%. Or that Reducing COLAs by 1% every year only will cover half the shortfall. Unfortunately, we may need to increase taxes. Moving to 16% payroll tax would fully cover the shortfall. That would be a relatively small increase from 6.2% to 8%, each, for an employee and the employer. But that is a regressive tax, which would impact low earners more than high earners. For reforms to work, it might require a combination of both increased taxes and reductions in the way benefits increase.

Kicking The Can Down The Road

Will the US take action to save Social Security, or will the reaction in France scare US Politicians? It’s hard to imagine our divided Congress reaching a compromise on an issue as difficult and controversial as changing Social Security. But any politician who is still talking about the other side as “trying to take away your Social Security” is now part of the problem and not part of the solution. Kicking the can down the road is not going to help America.

What is certain is the need to save Social Security. It is the largest source of retirement income for most Americans. And the lower your income, the more Social Security is needed to cover retirement expenses. We can’t keep ignoring the future of Social Security, it’s not going to get better on its own. The status quo is not an option.

I hope the US won’t see the same riots as Paris. But I also hope US politicians will do their job and have the courage to make the tough choices that are in the best interest of the public. US and French Social Security are both in the same precarious state. Let’s hope Winston Churchill was right: “You can always count on Americans to do the right thing, after they have exhausted all other possibilities.” That day is coming soon.

Read More
SECURE Act 2.0 Retirement Changes

Secure Act 2.0 Retirement Changes

Posted On December 29, 2022 By Scott Stratton, CFP(R), CFA In Retirement Planning /  

The SECURE Act 2.0 passed this week after being discussed in Washington for nearly two years. The Act could not make it through Congress on its own, but it was stuffed into the Omnibus Spending Bill that was required to avoid an imminent government shutdown. I’ll save that rant for another day and focus on some of the dozens and dozens of changes to retirement planning in the Secure Act 2.0 which will affect you.

First, some background: The original SECURE Act was passed in December 2019. This legislation was the largest change to retirement planning in recent decades. It included increasing the age of RMDs from 70 to 72 and eliminating the Stretch IRA for beneficiaries.

The SECURE Act 2.0 goes even further and has a large number of changes to help improve retirement readiness for Americans. We are not going to cover all of these changes, but focus on a few key areas that are likely to apply to my clients.

Required Minimum Distributions

The SECURE Act 2.0 will gradually increase the age of RMDs from 72 to 75. Next year, the age to start RMDs will be 73, and then this will increase to age 75 in 2033. So, if you were born before 1950, your RMD age will remain 72 and you have already started RMDs. If you were born between 1951-1959, your RMD age is 73. And if you were born in 1960 or later, RMDs will begin in the year you turn 75.

I’m happy to see RMDs pushed out further to allow people to grow their IRAs for longer. For investors, this will extend the window of years when it makes most sense to do Roth Conversions. People are living longer and we should be pushing out the age of RMDs and starting retirement.

Roth Changes

Washington loves Roth IRAs. Anyone who thinks Washington doesn’t like Roths should consider the incredible expansion to Roths in SECURE Act 2.0. Roths are here to stay.

First, SEP IRAs and SIMPLE IRA plans will be amended to include Roth Accounts. This brings them up to par with 401(k) plans which have offered a Roth option for several years now. What does this mean? Roth contributions are after-tax and grow tax-free for retirement. You will be able to now open a Roth SEP or a Roth SIMPLE. Do you have a W-2 job and also self-employment income? You can do a 401(k) at work and also a Roth SEP for your self-employment.

2.0 also eliminates the RMD requirement from Roth 401(k)s. This was an odd requirement, and could easily be avoided by rolling a Roth 401(k) to a Roth IRA. But it still caught some people by surprise, so I am glad they eliminated this.

Starting in 2023, Employers may now make matching contributions into Roth 401(k) sub-accounts for employees. These additional contributions will be added to the employee’s taxable income. So, this may not make sense for everyone.

Forced Roth for Catch-Up Contributions

In 2024, high wage earners will be forced into using a Roth sub-account for catch-up contributions. If you are over age 50, you can make catch-up contributions. If you made over $145,000 in the previous year, your catch-up contributions must go into a Roth 401(k) starting in 2024. You will no longer be able to make Traditional (“deductible”) contributions with catch-up amounts. Oh, and if your company does not currently offer a Roth option, everyone over 50 will be prohibited from making any catch-up contributions.

This one will be a mess and is one of the only negative impacts we will see from SECURE Act 2.0. It will take many months for 401(k) providers and employers to update their systems and figure out how to implement these new changes.

Lots of Roth changes, but what isn’t here? The SECURE Act 2.0 didn’t eliminate the Backdoor Roth IRA. Many in Congress have been wanting to kill the Backdoor Roth, but it lives on. There are no new restrictions on Roth Conversions of any sort. Why so much love for Roths? Washington wants your tax money now, not in 30 years.

529 Plan to Roth

What if you fund a 529 College Savings plan for your child and they don’t use all the money? Currently, you can change the 529 plan to another beneficiary. But if you don’t have another beneficiary, withdrawing the money could result in taxable gains and a 10% penalty. The SECURE Act 2.0 is creating a third option: you can rollover $35,000 from a 529 plan to a Roth IRA for the beneficiary.

Here are the requirements. You must have had the 529 plan open for at least 15 years. You cannot rollover any contributions made in the preceding five years. Each year, the amount rolled from the 529 to the Roth is included towards the annual Roth contribution limit. For example, this year the limit is $6,500. The maximum you could roll from a 529 would be $6,500. But if the beneficiary already contributed $3,000 to an IRA (Roth or Traditional), you could only roll $3,500 from the 529 to the Roth. Thankfully, there are no income limitations to make this rollover. The lifetime limit on rolling over a 529 to a Roth will be $35,000, so this may take 5-6 years assuming the beneficiary makes no other IRA contributions.

You can change the beneficiary of a 529 plan to yourself. So, could you take an old 529, change the beneficiary to yourself and then roll it into your own Roth IRA? It is unclear in the legislation if a change in beneficiary will start a new 15-year waiting period. We will have to wait for additional rules to find out.

Other SECURE Act 2.0 Retirement Changes

So many changes! (Here is the most detailed summary I have seen so far.) These won’t impact everyone but I am studying all of these to see who might benefit:

  • IRA catch-up amounts will be indexed to inflation and increase in $100 increments.
  • 401(k) Catch-up contributions will be increased for ages 60-63. The amount will be $10,000 or 150% of the annual amount, whichever is higher.
  • QCD (Qualified Charitable Distributions) limit of $100,000 will be indexed to inflation.
  • New exceptions to the 10% premature distribution penalty.
  • Emergency Savings Accounts, allowing people to access their 401(k)s without penalty. (Bad idea, but so many people in distress do this and then have to pay penalties and taxes, hurting them even further.)
  • QLAC limit increased to $200,000.
  • Allowing matching 401(k) contributions for payments towards student loans.
  • Tax credits for small employers who start a retirement plan.
  • New Starter 401(k) plans.
  • Lower penalties for missed RMDs.

I appreciate that Washington wants to make it easier for Americans to save for retirement. The SECURE Act 2.0 has a vast amount of retirement changes to incentivize the behavior the government wants to see. For those who are able to save for retirement, they are making it easier to save and accumulate assets. Your retirement is your responsibility! And retirement planning is my job. I’m here to help with your questions, preparation, and implementing your retirement goals.

Read More