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The S&P 500 and the NASDAQ started 2023 on a positive note and snapped three-week losing streaks, with both indexes rising more than 1%. The indexes had been negative for the week until a significant rally on Friday. Historically, January’s stock market performance has been a strong indicator of what may be in store for the rest of the year. In fact, 71% of the time since 1929, the S&P 500 has posted a positive return for the year after gaining ground in January or has gone on to post an annual loss when the market has declined in the first month.  The Friday rally followed a monthly jobs report that showed a slowdown in wage growth.  That is important because wage growth triggers inflation and it is a number the Fed watches closely.  The report could mean one of the significant inflationary pressures is easing. Overall, the economy generated 4.5 million jobs in 2022.  That is the second-highest annual total on record, trailing only the 6.7 million added in 2021.  After 15 tries a new speaker took the gavel in the House this week, however this week’s update will focus on legislation passed by the previous Congress just before the end of the year.  Secure Act 2.0 as it is known could have a large impact on your retirement. I have broken down some of the important changes using quotes from one of the most well-known Speakers of the House, Tip O’Neil.

Let us forget the frustrations of the past and think of our unfulfilled potential.

— Tip O’Neil - Speaker of the House 1977 to 1987

For those of you who have children who are finished with school and frustrated by the fact you have an unused 529 college savings balance, relief is coming.  You might be able to jump start their retirement by converting that balance into a Roth IRA. The government being the government nothing gets passed without a caveat.  Converting a 529 plan to a Roth IRA won’t be as straightforward as you might like. First off it won’t take effect until next year and details could change between now and then.  It was also limited by a couple key restrictions.  One, you will have to satisfy a minimum amount of time (15 years) that the assets have had to have been held for a particular 529 plan beneficiary prior to transfer to a Roth IRA.  Second, an aggregate lifetime 529 to Roth rollover will be limited to $35,000.

You better take advantage of the good cigars. You don't get much else in that job.

— Tip O’Neil - Speaker of the House 1977 to 1987

Good news on the 401k front.  The maximum contribution has increased to $22,500 and $30,000 if you are over 50.   That means if you are over 50 and getting paid every two weeks you could contribute $1154 per pay period into your retirement plan at work. Starting in 2025, if you’re between the age 60 – 63, the plan will boost the catch up provision to $10,000 a year.  Also the legislation did NOT eliminate back door Roth IRA contributions as was widely speculated that it would.

You can teach an old dog new tricks, and this old dog wants to learn.

— Tip O’Neil - Speaker of the House 1977 to 1987

An even more important change, the age at which you start minimum distributions has been pushed back and penalties have been reduced. The age to start taking RMDs increases to age 73 in 2023 and to 75 in 2033. The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs. Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans, like the Thrift Saving Plan (TSP) for federal employees. Sticking for a moment with the TSP there is even better news for special provision federal employees (Law Enforcement, Air Traffic Controllers, Fire Fighters) the rules for avoiding the 10% early withdrawal penalty have been expanded. The new rule is as follows special provision federal employees RETIRING/SEPARATING from federal service may access TSP funds without penalty if they meet these rules: (1) they retire/separate in the calendar year they turn age 50 (or older), OR (2) retire/separate at ANY age (w/ at least 25 yrs of covered service).   Meaning now you could retire at 48 with 25 years of service and access the TSP without penalty.  One additional piece of good news on the TSP front is that if an employee retires/separates before their TSP loan is paid off, they are permitted to continue to repay the loan instead of  it automatically being declared taxable.

If you’d like to speak about your investments or your plan, my calendar link is below and you can schedule a phone or zoom appointment.