1. Make it a New Year’s resolution to check IRA beneficiary forms and employer plan beneficiary forms. If you got married, had a birth/adoption, divorce or a death in the family in 2023, these forms may need to be updated. What better way to start the new year than with a new beneficiary on the retirement plan if a change is needed! If there are any updates, we will change them in the Seaside Portal.
2. Don’t forget contingent beneficiaries. Often overlooked, contingent beneficiaries are critical. They generally inherit the retirement plan if the primary beneficiary predeceases the retirement account owner. You should have both a primary and contingent beneficiary named on your retirement accounts.
3. Don’t forget successor beneficiaries. As the population owning retirement accounts ages, inherited IRAs are becoming increasingly common. If you own an inherited IRA, make sure you name a beneficiary to it, also known as a successor beneficiary. This will ensure the assets go to the person you want them should you die less than 10 years after inheriting the IRA.
4. Review 2023 distribution reporting. Most IRS reporting will be done in January 2024 for 2023. Check all Forms 1099-R for accuracy. Mistakes are not uncommon. There still may be time to correct these forms if the mistakes are caught early enough.
5. Check year-end statements for accuracy. Be sure that all information is correct, including balance amounts. Also, make certain all checks issued at year end are received and deposited in the correct accounts.
6. Make a prior year IRA contribution for 2023. Just because the year has ended, there is still time to make that IRA contribution for 2023. Prior-year IRA contributions are allowed up until April 15, 2024.
7. Make an early IRA contribution for 2024. Contributing on the earliest date possible for a year, January 1, rather than on the last date possible – the due date for the year’s tax return, generates 15½ months of extra investment returns on the contribution for the year. That higher balance then compounds over all future years until funds are withdrawn from the IRA. Doing this every year multiplies the effect. Making contributions as early in the year as possible instead of at the last minute can significantly increase an IRA’s value by retirement.
8. Take advantage of catch-up contributions if you are eligible. If you turn 50 in 2024, consider doing a catch-up contribution on your employer sponsored retirement plan, traditional and Roth IRAs. If you turn 55 in 2024, you can contribute an additional $1,000 to your HSA.
9. Avoid indirect rollovers of qualified accounts. When transferring your qualified investment account (i.e. 401(k) and IRA accounts), make sure to do a trustee-to-trustee transfer (also known as a direct rollover). This will avoid any tax consequences and you can do as many of these in one year as you need.
10. Don’t lose track of your cost basis when transferring a non-qualified or taxable account. Make sure your new custodian has your cost basis up to date. The original cost basis should transfer over to the new custodian upon completion of the transfer of the assets. This can save you money on unexpected capital gains tax when you make trades in the future.
11. Do a Form 5329 check-up. IRS Form 5329 is used to report the 10% penalty for early distributions, the 6% penalty for excess contributions, and the 50% penalty for RMDs not taken. To avoid penalties, make sure to review the rules. However, if any penalties are due to the IRS, it is best to pay them as soon as possible. You should check to see that all Forms 5329 are filed. This is important because there is no statute of limitations if not filed.
12. Don’t get caught in a Medicare penalty by signing up late. If you are turning age 65 in 2024, remember to sign up for Medicare three months before your birthday.
13. Make sure you are clear on when your Required Minimum Distributions begin. IRA owners generally use the Uniform Lifetime Table to find the life expectancy factor to calculate their RMDs. There is a 50% penalty that applies when RMDs are missed, so be sure you don’t miss this deadline. You will use the account balance from 12/31/2023 to determine your RMD amount. If your birth date is between July 1, 1949-1950, the applicable RMD age is 72. If you birth date is between 1951-1959, the applicable RMD age is 73. If your birth date is 1960 or later, the applicable RMD age is 75.
14. Verify that all 2024 RMDs for deceased IRA owners, if not taken by the IRA owner when alive, are paid out to the beneficiaries by year end. The year-of-death RMD is calculated as though the account owner lived for the entire year. It is often overlooked, particularly when IRA owners die near the end of the year without taking their full RMD. Beneficiaries who miss the deadline will face a 50% penalty on the shortfall.
15. Be sure to understand the new Inherited IRA Distribution Rules. Based on the new rules, beneficiaries of inherited IRAs are required to take all the RMDs by the end of the 10th year following the owner’s death. Careful planning can avoid a large distribution in later years 9-10. Keep in mind there are exceptions to this rule (a spouse or a beneficiary within 10 years of the decedent’s age). Make sure to consult with your financial advisor to discuss your specific situation.
16. Confirm that all 72(t) [substantially equal periodic payments (SEPPs)] distributions are made before year end. To avoid an early distribution penalty for taking money from a qualified retirement account before the age of 59 ½, you can take substantially equal payments over a 5-year period and avoid this. If you have started these payments to avoid the 10% early distribution penalty, the consequences are severe if payments are later missed or modified.
17. Make sure funds intended to be 2024 Roth IRA conversions leave the IRA account or employer plan by the end of the year. If your intention is to do a Roth IRA conversion, make sure the conversion is complete by 12/31/2024 to count for the 2024 tax year. You do not have up to April 15th to complete a prior year conversion; the funds must be distributed in 2024 and reported on a 2024 Form 1099-R.
18. Complete 2024 qualified charitable distributions (QCDs). QCDs allow IRA owners and beneficiaries who are age 70½ and older to transfer up to $105,000 of IRA funds tax-free to charity. These must be done by the end of 2024. If you miss the deadline, you will miss out on this tax break for the year.
19. Verify that employer plans are emptied if you are planning on using the net unrealized appreciation (NUA) strategy in 2024. If funds remain in the plan at the end of the year, the lump sum distribution requirement for NUA will not be met, and this valuable tax break may be lost.
20. Make sure to properly title your after-tax accounts. Ideally, you would register your account in the name of your trust to ensure that your assets transfer to your heirs based on your intentions upon your death. In the event you don’t have a trust, registering the account as a transfer on death will enable you to name a beneficiary on the account.
21. Be sure that separate accounts are set up by December 31, 2024 for any IRA beneficiaries who will inherit in 2024. When you inherit an IRA from someone who dies, the 10-year clock starts ticking on January 1 the year after death.
22. Don’t Forget to Carry your investment losses forward. If you did any tax-loss harvesting from the volatile markets of 2020 and 2023, be sure to utilize them to either reduce your AGI by $3,000 (you can do this until all losses are exhausted) or offset any capital gains in 2024 as you rebalance. Keep careful records of your tax loss harvesting activities and take advantage of them this year.
23. Check to see if you have any old 401(k) accounts. Every year there are billions of dollars sitting unclaimed in workplace retirement plans that initials either forgot about or did not know they even had. A few places to look are through the National Registry of Unclaimed Retirement Benefits or the Department of Labor’s abandoned plan database.
24. Make sure to stop, smell the roses, keep yourself healthy and enjoy the ride. If we have learned anything from the pandemic, it’s that life is short, and health may be our most important asset. Take good care of yourself and try to enjoy the journey. We hope that you have a wonderful 2024.
This commentary reflects the personal opinions, viewpoints and analyses of the Seaside Wealth Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Seaside Wealth Management, Inc. or performance returns of any Seaside Wealth Management, Inc. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Seaside Wealth Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.