I’m preparing for the upcoming tax season. As I stumble across changes to the tax law that folks here may be interested in, I’ll post them here (and encourage others to do so as well), in case they affect folks here.
The first one deals with Home Energy credits:
These are nonrefundable credits - they can decrease your tax liability to zero but cannot further increase your refund.
In past years, any part of the credit you didn’t use could be carried forward to future years.
The 2023 credits, which are part of the Inflation Reduction Act, cannot be carried forward to future years.
If you are expecting these credits but don’t have enough tax liability to fully get the benefit of the credit, consider doing a Roth IRA conversion or other transaction that will generate taxes now while reducing taxes later.
Here’s another one that probably won’t affect most of us for a while.
The age for Required Minimum Distributions is going up again, from 72 to 73. Here’s a chart that explains it most clearly to me:
If you were born:
You must start taking RMDs at age:
6/30/1949 or earlier
7/1/1949 to 1950
1951 to 1959
1960 or later
The first RMD must be taken by April 1 of the following year; all subsequent RMDs must be taken by 12/31 of that year. Designated Roth 401ks and 403b’s are subject to RMD rules for 2022 and 2023, but not for tax years 2024 and onward.
Good question, you’re right, it has changed.
(I’m also attaching the answer to Q9 from the IRS site, because even though that hasn’t changed, it’s important to know you do have an out if you miss your first RMD.)
Q8. What happens if a person does not take a RMD by the required deadline? (updated March 14, 2023)
If an account owner fails to withdraw the full amount of the RMD by the due date, the amount not withdrawn is subject to a 50% excise tax. SECURE 2.0 Act drops the excise tax rate to 25%; possibly 10% if the RMD is timely corrected within two years. The account owner should file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return for the year in which the full amount of the RMD was required, but not taken.
Q9. Can the penalty for not taking the full RMD be waived?
Yes, the penalty may be waived if the account owner establishes that the shortfall in distributions was due to reasonable error and that reasonable steps are being taken to remedy the shortfall. In order to qualify for this relief, you must file Form 5329 and attach a letter of explanation. See the Instructions to Form 5329
Good to know thanks! The few tax returns we do are mostly people 65+. We had someone who missed their RMD a few years ago but thankfully we got it forgiven for her. Otherwise she would’ve had to pay $7,500.
Starting in 2024, you may be able to rollover unused 529 funds to Roth IRAs. There are some rules, which are described in the two links below.
Please note, I was not able to confirm this information on an IRS site. The site notes that this is what was included in the Secure 2.0 Act and that IRS interpretation and implementation could be different.
The rules (from the Charles Schwab site unless noted):
Tax Free The rollover is not taxable and the 10% early withdrawal penalty does not apply
Lifetime limit There’s a $35,000 lifetime rollover limit
Holding periods. You need to have owned the 529 for at least 15 years before you can execute a rollover. Contributions made to the 529 plan in the last five years before distributions start—including the associated earnings—are ineligible for a tax-free rollover.
Annual limits. Your rollover can’t exceed the annual Roth contribution limit, which in 2023 is $6,500.
Ownership. The beneficiary of the 529 plan must also be the owner of the Roth IRA, and they must have earned income at least equal to the amount of the rollover.
Income limitations The income limitations that normally apply to a Roth contribution may not apply to this rollover (this was on the Fidelity site but not the Schwab site).