Categories
Uncategorized

The AI Revolution: How Independent Financial Advisors Can Stay Ahead of the Curve

The AI Revolution: How Independent Financial Advisors Can Stay Ahead of the Curve

How can independent financial advisors leverage Chat GPT?

The financial services industry has long been known for its use of cutting-edge technology to drive innovation and growth. In recent years, the rise of artificial intelligence (AI) has brought about new possibilities for financial advisors looking to grow their business and better serve their clients. Chat GPT, in particular, is a powerful tool that financial advisors can use to leverage the power of AI and enhance their operations. Let’s explore how Chat GPT and other AI technology will change the financial services industry and what financial advisors can do to stay ahead of the curve.

Learn more about Open AI and Chat GPT: https://openai.com/blog/chatgpt/

What is Chat GPT?

Chat GPT (Generative Pre-trained Transformer) is a state-of-the-art artificial intelligence language model developed by OpenAI. It is a machine-learning algorithm that is trained on a large dataset of text to understand the structure and patterns of natural language.

It can be used to generate natural language responses to a wide range of inputs, such as questions, prompts, and commands. It is designed to mimic human language patterns and can generate responses that are grammatically correct, coherent, and contextually relevant.

It also has a wide range of applications, including customer service chatbots, language translation, text summarization, and content creation.

Overall, Chat GPT represents a significant advancement in natural language processing and has the potential to revolutionize the way we interact with technology—and each other.

Explain Chat GPT to me like I’m a 5 year old.

Chat GPT is like a really smart robot that can talk to people and answer their questions. Just like you ask me questions and I answer them, people can talk to Chat GPT and it can answer their questions too. It possesses a big brain that helps it understand what people are asking and comes up with answers that make sense.

How can independent financial advisors leverage Chat GPT to help with their marketing efforts?

As mentioned earlier, Chat GPT is a powerful AI tool that can help financial advisors in many ways. One of the ways that Chat GPT can be used is to assist with marketing efforts. Here are some ideas on how financial advisors can use Chat GPT for different marketing activities:

  1. Writing social media copy: Financial advisors can use Chat GPT to help write compelling social media copy that attracts attention and engages their audience. To do this, simply input a brief description of the message you want to convey and Chat GPT will generate a variety of potential social media posts. You can then choose the one that best fits your messaging and style. For example:

    “The SECURE Act 2.0 has been making headlines lately, and for good reason. Retirees may be particularly interested in proposed changes to IRA contribution limits, catch-up contributions, and required minimum distributions. Check out our latest podcast to learn more.”

  2. Writing email updates: Financial advisors can use Chat GPT to help write email updates that provide valuable information to their clients and prospects. Simply input the key points that you want to convey and let Chat GPT generate a well-written email. For example:

    “Dear valued clients,

    As we continue to monitor the state of the economy and the impact of current events, I want to take a moment to reassure you that we are committed to helping you navigate through any potential challenges.

    We understand that times of economic uncertainty can be particularly stressful, especially for retirees who rely on their investments and savings to support their lifestyles. However, it’s important to remember that downturns are a natural part of the economic cycle, and that there are steps we can take to help you weather the storm.

    One of the most important things we can do is to focus on the long-term picture. While market volatility can be concerning in the short term, history has shown that markets tend to recover over time. As your financial advisor, our role is to help you stay invested in a way that aligns with your long-term goals, while also managing risk to ensure that your portfolio remains well-positioned to weather any potential downturns.

    Additionally, we can work together to explore other strategies that may help to reduce risk and protect your investments during uncertain times. This may include diversification across different asset classes, regularly rebalancing your portfolio, and taking advantage of tax-efficient investment strategies.

    At this time, I want to assure you that we are closely monitoring the situation and staying up-to-date with the latest news and analysis. We will continue to provide you with regular updates and recommendations to help you navigate through any challenges.

    Please don’t hesitate to reach out to us if you have any questions or concerns. We are always here to support you and help you make informed decisions.

    Sincerely,

    [Your Name]”

     

     

  3. Writing blog posts for their website: Chat GPT can be used to help financial advisors generate new blog post topics and even provide a first draft of the content. To do this, simply input the topic or title you want to cover, and Chat GPT will provide a number of potential blog post topics, and even suggest an outline and initial draft. For example, “5 Investment Strategies for a Volatile Market.”

  4. Creating content for SEO: Financial advisors can use Chat GPT to help generate content that is optimized for search engines. By inputting keywords and phrases related to their target audience and industry, Chat GPT can suggest content that will help improve search engine rankings. For example, “How to Maximize Your Retirement Savings: Tips for Young Professionals.”

  5. Creating FAQ questions and answers: Chat GPT can be used to help financial advisors generate FAQ questions and answers that can be added to their website. This can help provide valuable information to clients and prospects and improve their website’s overall search engine rankings. For example, “What is a 401k and how does it work?” or “How can I minimize taxes on my investment income?” By creating an FAQ section on your website with often searched questions, you can help build valuable content users may find useful.

These are just a few examples of how financial advisors can use Chat GPT to enhance their marketing efforts. By leveraging the power of AI, financial advisors can save time and resources while still providing high-quality, personalized content to their clients and prospects. However, it’s important to remember, all content will need to be reviewed by compliance before it can be used and also to ensure accuracy. One of the limitations of Chat GPT is that the information provided is not always accurate!

What are potential challenges with Chat GPT?

While Chat GPT and other AI technologies have a lot of potential to transform the financial services industry, there are some challenges that businesses may face when implementing this technology.

Accuracy: While Chat GPT has made significant advancements in natural language processing and understanding, there is still a risk that the AI may misinterpret or misunderstand certain requests or queries from users. This could result in incorrect or inaccurate responses, which could harm the user experience and undermine the trust and credibility of the financial advisor. It could also land them in hot water with their compliance department and other regulatory entities.

Security: As with any digital technology, there is a risk of data breaches and cybersecurity threats. Chat GPT may collect sensitive information from users, such as their financial information or personal details, which could be targeted by hackers. It is important to ensure that proper security measures are in place to protect user data and maintain compliance with regulatory standards. Watch out for phishing and other scam attempts that may pose as a chat bot or AI to try to collect personal data. You should never input any personal data of yours, or your clients, into Chat GPT.

User experience: Chat GPT is still a relatively new technology, and users may not be familiar or comfortable with interacting with an AI-powered chatbot. It is important to design the user interface in a way that is intuitive and easy to use, and to provide clear instructions and support for users who may have questions or need assistance.

Ethical considerations: As with any technology that collects and analyzes data, there are ethical considerations around how the data is used and whether it is being used in a fair and transparent manner. It is important to ensure that proper data governance and ethical standards are in place to protect user privacy and maintain trust in the technology.

Overall, while Chat GPT has a lot of potential to transform the financial services industry, it is important for businesses to be aware of these potential challenges and take steps to mitigate them to ensure a successful implementation of the technology.

Will Chat GPT, or other AI technologies, replace financial advisors one day?

While Chat GPT and other artificial intelligence (AI) technologies have made significant advancements in recent years, it is unlikely that they will completely replace human financial advisors anytime soon.

Financial advisors bring a unique set of skills to the table that go beyond just providing information and advice. They are trained to assess a client’s financial situation, goals, risk tolerance, and other factors to create a personalized financial plan. They also have the ability to provide emotional support and reassurance during times of financial stress or uncertainty, which can be crucial to a client’s overall financial well-being.

Chat GPT and other AI technologies, on the other hand, are currently best suited for providing general financial education and answering simple questions. While they can analyze data and provide recommendations, they lack the human touch and personalized attention that financial advisors can provide. Take this prompt and output for example:

That being said, Chat GPT and other AI technologies can be used to augment the work of financial advisors, helping them to streamline their processes and provide more personalized recommendations.

Why should I care about Chat GPT and other AI technology?

We’re just beginning to see what AI can do and its potential to revolutionize the way we all do business and interact with technology. The financial services industry has been leveraging AI for some time to analyze large amounts of data and make recommendations to DIY investors. It’s important to follow along with this technology because it has the potential to further disrupt the financial services industry and provide significant benefits to both advisors and their clients.

Here are some reasons why:

Enhanced efficiency: AI technologies can help financial advisors automate administrative tasks and streamline their workflows. This can free up time for advisors to focus on higher-value activities, such as providing personalized advice and building relationships with clients.

Improved customer experience: AI technologies can help financial advisors provide a more personalized and engaging customer experience. For example, they can used to create chatbots that can answer common client questions and provide instant support, even outside of regular business hours.

Data analysis and insights: AI technologies can be used to analyze vast amounts of financial data and identify patterns and trends that might be missed by human analysts. This can help advisors make more informed investment decisions and better serve their clients.

Competitive advantage: As AI technologies become more prevalent in the financial services industry, financial advisors who adopt these tools early can gain a competitive advantage over their peers.

Conclusion

In conclusion, AI technology is transforming the financial services industry in many ways, and Chat GPT is a powerful tool that financial advisors can use to enhance their operations. By investing in AI technology, staying up-to-date on industry trends, and emphasizing the human touch, financial advisors can stay ahead of the curve and provide better service to their clients. However, it’s important to remember that AI technology is not a replacement for human expertise and experience, but rather a tool that can help financial advisors better serve their clients.

P.S. This article was mostly written by Chat GPT 😉

Perry Boles, Chief Marketing Officer

Perry Boles, Chief Marketing Officer

Perry plays a vital role in supporting the growth of independent financial advisors. With a sharp strategic mind and a talent for creating impactful marketing campaigns, Perry helps financial advisors expand their client base and reach their business objectives.

At the helm of a skilled marketing team, Perry inspires his colleagues to think outside the box and develop innovative solutions to complex marketing challenges. He places a strong emphasis on delivering measurable results for the firm and its clients, ensuring that each marketing campaign has a tangible impact on their success.

Perry is a visionary leader, driven by a passion for marketing and a commitment to excellence. He cultivates a supportive and collaborative work environment, encouraging his team to take ownership of their projects and bring their unique ideas to the table. Under his leadership, the marketing team at CreativeOne continues to set new standards for innovation and results in the financial services industry.

Perry Boles, Chief Marketing Officer

Perry Boles, Chief Marketing Officer

Perry plays a vital role in supporting the growth of independent financial advisors. With a sharp strategic mind and a talent for creating impactful marketing campaigns, Perry helps financial advisors expand their client base and reach their business objectives.

At the helm of a skilled marketing team, Perry inspires his colleagues to think outside the box and develop innovative solutions to complex marketing challenges. He places a strong emphasis on delivering measurable results for the firm and its clients, ensuring that each marketing campaign has a tangible impact on their success.

Perry is a visionary leader, driven by a passion for marketing and a commitment to excellence. He cultivates a supportive and collaborative work environment, encouraging his team to take ownership of their projects and bring their unique ideas to the table. Under his leadership, the marketing team at CreativeOne continues to set new standards for innovation and results in the financial services industry.

Categories
Uncategorized

Long-term care is a family affair.

Long-term care is a family affair.

Rosalyn Carter once said, “I like to say that there are only four kinds of people in the world. Those who have been caregivers. Those who are currently caregivers. Those who will be caregivers, and those who will need caregivers.”

Chances are, at some point in our lives, we will be both care providers and care receivers. Whether it’s for aging parents and family members—perhaps our spouse, or maybe a friend or neighbor—we will all be responsible for providing care. That care could be either physical, emotional, or financial. Long-term care solutions are about providing income when long-term care is needed. Some say that long-term care solutions allow the family to provide a higher level of care. You see, when the income issue is solved, we can focus on our loved ones and enjoy friendly camaraderie and loving companionship without the physical strain or monetary concerns.

With November also comes the beginning of the holiday season. Another thing you might not know is that the holiday season is often a time for increased call volume surrounding long-term care concerns. Why? Because families are gathering together for the holidays and family members might notice that a loved one isn’t as mobile as they once were, or maybe they’ve become “forgetful.” These changes can be subtle, or they can be harsh.

If your clients need long-term care, you may want to help them navigate that process. Rest assured that they will never have to go it alone. We’re committed to providing service at every turn.

Download our white paper on the importance of long-term care to your practice now.

Here are some additional stats and resources you can share from some of the best carrier partners we work with.

Why long-term care protection matters?

Play Video

Sources
1. Dhue, Stephanie and Epperson, Sharon. “Americans can expect to pay a lot more for medical care in retirement.” CNBC.com.
May 16, 2022.
2. Keenan, Teresa A. “Long-Term Care Readiness report.” AARP Research. Published June 2022.
3. Carbonnell, Josefina. “The long-term care dilemma: Who will take care of you?” The Palm Beach Post. May 18, 2022.
4. Gleckman, Howard. “Is long-term care a predictable need, or an unexpected one?” Forbes. April 15, 2022.
5. Estimate calculated using projected rise in national median costs of care from 2022 to 2032. National Cost of Care Calculator, LTC
News. 2022.
6. Kerr, Nancy. “Family caregivers spend more than $7,200 a year on out-of-pocket costs.” AARP Research. June 29, 2021.

Categories
Uncategorized

Say Hello to iStructure

Say Hello to iStructure

An Innovative Approach to Structured Installment Sales

In December 2021, Independent Life introduced an innovative structured settlement indexed annuity product, iStructure. iStructure is the first uncapped Index-Linked Structured Settlement Annuity option in the market. iStructure is powered by Franklin Templeton and Bank of America’s quantitative insights. Independent Life focuses on the structured settlement market so that professional consultants can utilize these modern annuity products in conjunction with other financial products and government benefits to produce optimal solutions. With the availability to help with personal injury cases, structured attorney fees, structured installment sales (business or real estate property), taxable settlements, and settlement trusts, iStructure serves as a multi-functional tool for advisors and their clients.

What is iStructure?

iStructure is a tax advantageous planning tool for mitigating capital gains taxes during the sale of highly appreciated capital assets that qualify for installment sale treatment under IRC Section 453. iStructure is primarily used for structured installment sales (business or real estate property) to turn the proceeds of a capital-appreciated asset into a series of customizable periodic payments that are protected against market downturns and increase when the underlying index is positive. As featured in The CPA Journal, “When the right set of circumstances presents itself, there may be no simpler way to defer, reduce, or completely eliminate long-term capital gains taxes when selling real estate, businesses, or certain other appreciated assets than a structured installment. If planned properly, unlike many of the other options that focus mostly on tax deferral, a structured installment sale can eliminate taxes on gains altogether, even if the gain is significant.”

Clients that are interested in selling their business or are sitting on highly appreciated real estate properties could use the structured installment sale as an exit planning solution. The benefits potentially include an increase in income, customizable payment options, market downside protection, and protection against inflation. Read our Business Sale Case Example and Real Estate Sale Case Example to learn more about the benefits of iStructure for business and real estate sales. iStructure can also be a unique solution for a client receiving a settlement from a personal injury, wrongful death, or workers’ compensation cases (when working in conjunction with a personal injury attorney) or used on the fees the attorney would make on the case.

How does iStructure work?

Clients elect the start date, format, and duration of the future recurring payments. On each annual adjustment date, the guaranteed annual income increases based on the growth in the underlying index. Utilizing Franklin Templeton and Bank of America’s World Index allows for the potential to achieve consistent returns while preserving capital to continually generate additional income. The use of iStructure can be an incredibly powerful tool but can be a cumbersome process that goes beyond day-to-day business. iStructure should not be considered a one-size-fits-all option for all clients due to its complexity but instead, as an option that can be implemented on the side.

Want to learn more or need additional resources?

CreativeOne is your destination for professional expertise as you look into the benefits and necessary steps into implementing iStructure. Please contact Paul Fulena or Tonio Fulena to learn more or call 800.992.2642 to schedule a meeting.

Citations
https://www.istructureannuity.com/index-linked-structured-settlement-annuity
https://www.independent.life/payee-protection-policy/
https://www.independent.life/qualified-settlements/
https://www.independent.life/non-qualified-settlements/
https://www.independent.life/attorney-fee-structures/
https://www.cpajournal.com/2021/12/31/an-introduction-to-structured-installment-sales/

Categories
Uncategorized

Test Blog Post Title

Test Blog Post Title

New IRS SECURE Act Regulations and Missed RMDs

 

Question:
I read your 2/28/22 Slott Report on the updated SECURE Act information for non-eligible designated beneficiaries (non-EDBs) that requires annual RMDs to continue if the original owner was taking them prior to his death and also requires the account to be emptied by the end of year 10.

Since the Roth IRA does not have RMDs, is it correct to assume that the non-EDB of an inherited Roth IRA would also not be required to take RMDs and only be subjected to the 10-year rule?

Answer:
You are correct. The new IRS regulations specifically say that Roth IRA owners are considered to have died before their RMD required beginning date (RBD). Since the new annual RMD requirement applies only when an IRA owner dies on or after his RBD, beneficiaries of inherited Roth IRAs are spared from this rule. However, those beneficiaries still have to empty the account by December 31 of the 10th year following death.

Question:
I do taxes for an 80+ year old lady with an IRA. She said she never received a letter from the company she has her IRA with to let her know she needed to take a withdrawal for 2021. The company, of course, says they did.

I am trying to find a way to rectify this situation. She is filling out the paperwork for the 2021 RMD, but because she is two months past the due date, technically she owes the penalty. Should we file her taxes for 2021 and just wait for the IRS to catch up with this?

Answer:
There is a 50% excise tax for missing an RMD. However, the IRS will usually waive that penalty if the IRA owner takes the RMD and files Form 5329 with the IRS. The Form 5329 should include an attachment explaining why your client did not take the 2021 RMD. She does not need to pay the excise tax unless the IRS comes back and assesses it (which is unlikely).

 

Required Minimum Distributions and Inherited IRAs

 

Question:
Hello. I was reading the 2/28/22 edition of the Slott Report and noticed the section titled “Beneficiaries Hit w/Annual RMDs and the 10-Year Rule.” It was my understanding that starting 1/1/20, most non-spouse beneficiaries would have 10 years from the year of death to distribute the IRA, with no RMDs required.

Will adult individuals who inherit a traditional IRA from an 80-year-old parent in 2020, for example, now have to start taking annual RMDs, with the remaining balance withdrawn in the 10th year?

Answer:
This is a great question. The IRS just recently released proposed SECURE Act regulations. In the regulations, they do take the position that, if the IRA owner died on or after his required beginning date, then annual RMDs would be required, as well as the SECURE Act’s 10-year rule. In your example, an adult child, who inherits a traditional IRA from a parent who dies at age 80, would need to take annual RMDs from the inherited IRA (for years 1-9 after the year of death) and also empty the account by the tenth year following the year of death. If the IRA owner dies before his required beginning date, then no annual RMDs would be required during the 10-year payout period.

Question:
If a Roth IRA was inherited before 2019 and the non-spouse beneficiary is taking RMDs under the old stretch lifetime rules, will the new changes to the IRS life expectancy table apply to that inherited Roth IRA staring in 2022?

And, if yes, will the IRA custodian automatically make the changes (apply the new factors), or does the beneficiary have to do something?

Answer:
All beneficiaries who are required to take annual RMDs from inherited IRA can use the new life expectancy tables issued by the IRS starting for 2022 RMDs. For a non-spouse beneficiary, this may mean resetting her factor by finding her age in the year following the Roth IRA owner’s death on the new table and then subtracting one for each year that has passed through 2022. Custodians are likely to make the changes automatically, but if you have any questions you should contact them or reach out to a knowledgeable tax or financial advisor.

SECURE Act Regs Bring New Roth IRA Advantage


Roth IRAs have always been a great retirement savings tool. While pre-tax retirement accounts allow tax deferred savings, a Roth IRA promises tax-free benefits. They allow you to receive years of earnings in retirement without tax consequences. Those tax-free distributions also have the side benefit of not increasing stealth taxes such as IRMAA surcharges and taxation of Social Security benefits. Add in the fact that a Roth IRA does not require RMDs during the owner’s lifetime (unlike qualified plans and traditional IRAs), and it is easy to see the Roth advantage. The newly released SECURE Act regulations have added another benefit to the Roth IRA tax break list with their unexpected interpretation of the 10-year payment rule.

In the new regulations, the IRS has taken the position that when an IRA owner dies on or after their required beginning date and the 10-year rule applies, the account is also subject to annual RMDs. This surprising interpretation of the SECURE Act will affect a lot of IRA beneficiaries because most IRA beneficiaries will be subject to the 10-year rule under the SECURE Act and many IRA owners die when they are older and beyond their required beginning date. Now these beneficiaries are subject to the hassle of having to calculate annual RMDs during years one to nine of the 10-year period using tricky rules. They must take taxable distributions to avoid a hefty 50% penalty for missed RMDs.

Good news for Roth IRA beneficiaries! The IRS confirms in the regulations that all Roth IRA owners are considered to have died before their required beginning date. This means no annual RMDs from inherited Roth IRAs are required for beneficiaries subject to the 10-year rule. An inherited Roth IRA offers complete flexibility within the 10-year period and completely avoids the complicated RMD rules. And, best of all, the Roth IRA can grow tax-free for ten years before any distributions are required.

Example: Rodney, age 75, dies in 2022. The beneficiary of his Roth IRA is his daughter, Rhianna, age 50. Rhianna will be subject to the 10-year rule, but she does not have to take annual RMDs. She can let the Roth IRA grow and accumulate tax-free earnings for ten years. The entire inherited Roth IRA must still be distributed by December 31, 2032, but it will be a tax-free distribution.

 

The Most Controversial Part of the New IRS Regulations

The part of the new IRS SECURE Act regulations causing the most reaction is the one requiring annual required minimum distributions (RMDs) for some IRA or workplace plan beneficiaries subject to the 10-year payment rule.

Under the SECURE Act, IRA or plan beneficiaries who are not “eligible designated beneficiaries” (EDBs) are subject to the 10-year rule. (EDBs are surviving spouses; children of the IRA owner or plan participant who are under age 21; disabled or chronically ill individuals; and anyone not more than 10 years younger than the owner/participant.) Non-EDBs must empty the IRA or plan account by the end of the 10th year following the year the owner or participant died. On the other hand, EDBs are allowed to stretch required minimum distributions (RMDs) over their life expectancy.

Prior to the issuance of the new regulations, most commentators believed the 10-year rule never required annual RMDs for years 1-9 of the 10-year period. In the past, the IRS has given out mixed signals on this issue. However, in the new regulations, the IRS very clearly says that certain non-EDBs are subject to both the 10-year payment rule and a requirement to take annual RMDs in years 1-9 of that 10-year period.

Only non-EDBs who inherit on or after the owner or participant’s required beginning date (RBD) are subject to the annual RMD requirement. Non-EDBs who inherit before the decedent’s RBD can take as little or as much as they want over the 10-year period. But the rule requiring distribution of the entire account by the end of the 10-year period still applies.

So, what is the RBD? It’s the date by which the first RMD is due. For an IRA owner born before July 1, 1949, it’s April 1 of the year following the year she turned age 70 ½. For an IRA owner born on or after July 1, 1949, it’s April 1 of the year following the year she turns 72. For plan participants who don’t own more than 5% of the company sponsoring the plan, the RBD can be delayed until April 1 of the year following the year of retirement.

What if you are a non-EDB who inherited in 2020 after the owner/participant’s RBD and you didn’t receive your 2021 RMD (because you didn’t know it was required)? Should you take the missed RMD now? Keep in mind it’s possible that 2021 annual RMDs in this situation were not required based on the fact the new regulations technically weren’t effective last year. (This is a murky legal question.) It’s also possible the IRS will issue relief for missed 2021 RMDs later this year. Holding off taking your 10-year-rule 2021 RMD until later in 2022 won’t subject you to any higher penalty than if you take it now. So, if you are in the affected category of non-EDBs, you may want to delay your “missed” 2021 RMD until later in 2022 when we may know more. Talk this over with a knowledgeable financial advisor.

Meanwhile, we’ll let you know about any further guidance from the IRS on this issue.

 

Age of Majority and the New SECURE Act Regulations

The 275 pages of proposed SECURE Act regulations, released by the IRS on February 23, are chock full of little details. Each of these tidbits will have some impact on particular IRA owners and retirement account participants.

One such new rule pertains to the age of majority. When is a minor child recognized as an adult? Existing IRS guidance deferred to the age of majority under state law. This created some confusion as most states said age 18, a couple said 19, and Mississippi said 21. Why is this important? The age of majority dovetails with the opportunity a minor beneficiary has to stretch inherited IRA account assets.

The new regulations draw a universal line in the sand. The age of majority is now recognized as 21.

The minor child of an IRA account owner is considered an eligible designated beneficiary (EDB). As an EDB, that minor child is allowed to use her own single life expectancy to calculate an annual required minimum distribution (RMD). This will allow the child to stretch IRA payments until she is 21. At that time, the 10-year payout rule will apply, and the now-adult child will have another 10 years to maintain the inherited IRA. (Future Slott Report entries will discuss the new guidelines governing the 10-year rule.)

Example: Meredith dies at age 48. She had an IRA, and her only daughter Sally, age 10, was listed as the beneficiary. Sally is an EDB, so she is permitted to stretch IRA payments over her own life expectancy. (When RMDs start in the year after death, when Sally is 11, she will use the single life expectancy factor of 73.9.) Sally can take annual RMD payments until she is 21. At that point, the 10-year rule will apply. Sally must then empty the account by December 31 of the tenth year following the year she turns 21.

Additionally, the new SECURE Act regulations changed a provision which allowed minor children who were still in school to extend the age of majority to as late as age 26. This is no longer an option and, as such, should minimize confusion. The “still-in-school” language is no more. The age of majority, as recognized by the SECURE Act regulations, is fixed at 21.

Stay tuned for more summaries of the SECURE Act regulations in the coming days and weeks. There is lot to dig through in those 275 pages, and we will do our best to bring you the pertinent highlights…and lowlights.

 

SECURE Act Regulations Are Here

On February 23, 2022, the IRS released the long-awaited proposed SECURE Act regulations. The new regulations clock in at 275 pages and offer guidance on many SECURE Act rules. They also include a few surprises. Here are some highlights.

Eligible Designated Beneficiaries

The SECURE Act did away with the stretch IRA for most beneficiaries, but those who are considered an eligible designated beneficiary (EDB) can still take advantage of it. The regulations clarify exactly who is an EDB. They specify that a minor child of an IRA owner is considered an EDB until his 21st birthday. The regulations also provide guidance on determining who qualifies as disabled, particularly for beneficiaries under age 18.  Also, a new documentation requirement is imposed on chronically ill and disabled EDBs to qualify for the stretch.

Trusts

The SECURE Act upended the rules for trusts as beneficiaries of IRAs, and guidance addressing the outstanding issues were sorely needed. The newly released regulations keep many of the rules that existed for trust beneficiaries prior to the SECURE Act such as the rules for look-through trusts. If a trust satisfies the look-through rules, then the beneficiaries of the trust are considered designated beneficiaries.

The regulations also attempt to answer some of the many issues with trusts that were raised in private letter rulings over the years. This includes when beneficiaries can be disregarded for purposes of identifying RMD payments, the impact of powers of appointments, and state laws that permit the terms of a trust to be modified after death.

The SECURE Act carved out special rules for trusts with disabled or chronically ill individuals allowing the stretch even if the trust has other beneficiaries. The new regulations provide guidance on these trusts and also add minor children of the IRA owner as another category of EDB that can still qualify for the stretch even if there are other non-EDB trust beneficiaries.

Beneficiaries Hit with Annual RMDs and the 10-Year Rule

The IRS has taken a somewhat surprising position on the new 10-year rule imposed by the SECURE Act. If the account owner dies before her required beginning date, the 10-year rule only requires that the entire account be emptied by December 31 of the tenth year following the year of death. There are no annual RMDs. However, the new regulations say that if the IRA owner dies after her required beginning date, then not only does the 10-year rule apply, but also annual RMDs are required in years one through nine.

Spousal Rollovers

The regulations include a new rule for spousal rollovers that seems to be intended to prevent spouse beneficiaries from using the new 10-year rule to delay RMDs. The rule requires “hypothetical missed RMDs” to be taken when a spousal rollover is done in some circumstances.

50% Penalty Relief

If the IRA owner was required to take an RMD in the year of their death, the rules require the beneficiary to take that RMD if the IRA owner did not do so prior to death. This rule can be hard on beneficiaries when the IRA owner dies late in the year. The new regulations provide some relief in these situations by providing an automatic waiver of the 50% penalty that usually applies when an RMD is missed. This waiver is available as long as the beneficiary takes the year of death RMD by her tax-filing deadline, including extensions.

Stay Tuned

The new regulations are proposed to apply for determining RMDs for 2022 and later. Public comments are being accepted and a hearing is scheduled in Washington for June 15, 2022. The IRS will then issue final regulations at some point in the future. That could take some time. Stay tuned to the Slott Report for more information on the new SECURE Act regulations!

Categories
Uncategorized

Hello world!

Welcome to WordPress. This is your first post. Edit or delete it, then start writing!

Privacy Policy

We collect information based on your actions although it does not personally recognize you when you visit our website or those that we serve advertisements. We collect information from you when you register on our site or fill out a form. Your information is collected and used to improve customer service and help us effectively respond to your service and support needs.

Your information will never be traded, shared or sold.

The online privacy policy only applies to information collected through our website and not to information collected offline.

We do send periodic emails and your email address may be used to send to you information and updates pertaining to your needs for services you may be interested in. All of our emails use common email best practices and are CAN SPAM compliant. All of our emails contains easily opt out links in the footer.

Our advertisers and us try and reach the best inventory by working with third parties to help us recognize the user and serve them relevant ads when you are in the network. We also can recognize you on different devices to show those advertisements. We also use third parties for online website analytics so we can continue to serve the right ads to the right person.

We will use cookies and pixels to keep track of your actions on our website. As you browse creativeone.com, advertising cookies will be placed on your computer so that we can understand what you are interested in so that we serve you more relevant ads.  Cookies are usually small text files, with an Id tag to store in the computers data subfolders. Our display advertising partner then enables us to present you with retargeting advertising on other sites based on your previous interaction with creativeone.com. The techniques our partners employ do not collect personal information such as your name, email address, postal address, or telephone number.  You can visit this page to opt out of our display partner’s targeted advertising.

By using our site you consent to our privacy policy.

Our Privacy Policy was last updated on March 30, 2015 and if there are any questions feel free to refer to our contact page.