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What Does the SECURE Act 2.0 Mean for You?

by Rev. Bill Gruenewald

Most people may not be aware that on December 29, 2022, the president signed into law a bill that included the SECURE Act 2.0 (Setting Every Community Up for Retirement Enhancement), expanding upon the original SECURE Act passed in 2019. The primary purpose of both of these legislations is to encourage businesses to offer a retirement plan to their employees and to encourage individuals to save more for their own retirement.

So how does that affect you personally?

There’s a lot to digest in this act, but the main points for most people as it relates to retirement and estate planning include:

• Increasing the age when you have to take a required minimum distribution (RMD) from retirement accounts.
• Increasing the catch-up contributions for retirement for those over 50 years of age
• Expanding the Qualified Charitable Deduction (QCD) to be able to fund charitable trusts before death

The most important thing to know is that these provisions allow you to save more for retirement and expand your impact with your estate planning. 

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For those interested in going a bit deeper on everything the act accomplishes, here are the key provisions:

1. Increase Required Minimum Distributions (RMD) Age – Increase the beginning date for RMDs from age 72 to 73 starting in 2023 and age 75 in 2033.

2. Increase Catch-Up Contributions Under a Retirement Plan or IRA – In 2023, the retirement plan catch-up contribution limit for those over 50 is $7,500. Starting in 2025, catch-up contributions for those ages 60 to 63 will be increased to the greater of $10,000 or 50% more than the regular catch-up contribution amount in 2024. Catch-up contributions will be indexed for inflation starting after 2025. IRA catch-up contribution for an individual who attains age 50 will be indexed for inflation starting in 2024.

3. Expand Roth Contributions – Roth contributions are now allowed for SIMPLE and SEP IRAs. Employer contributions and employee elective deferrals (if permitted) can be designated as Roth.

4. Roth Catch-Up Contributions – For those with incomes exceeding $145,000, catch-up contributions will be designated as Roth contributions.

5. Eliminate RMDs for Roth 401(k) Accounts – Starting in 2024, required distributions will no longer need to be taken from Roth 401(k) accounts. 

6. 529 Plan Rollovers to Roth IRAs – Starting in 2024, beneficiaries of 529 plans may roll over up to $35,000 during their lifetime to a Roth IRA. The rollovers will be subject to annual contribution limits and the 529 plan must have been open for more than 15 years.
   
7. Expand 401(k) Automatic Enrollment – Starting in 2025, 401(k) and 403(b) plan participants are automatically enrolled in the plan once they are eligible to participate. Some details are:  
   • Initial contribution of at least 3% of their salary.
   • Each year contributions would increase by 1% until a goal of 10% is reached, but not more than 15%.

8. Emergency Savings Account – Beginning in 2024, employers can establish an emergency savings account where employees can save up to $2,500 in a Roth-style account. Distributions will be treated like a qualified distribution from a Roth account (tax-free if requirements are met). 

9. Exemption from 10% Early Distribution Penalty for Withdrawals for Certain Emergency Expenses – In case of financial hardship, up to $1,000 may be withdrawn per year, penalty-free, from a 401(k) or IRA. The employee has the option to repay the distribution within three years. No further distributions will be permitted during the repayment period unless the distribution is paid in full.

10. Modify the Saver’s Credit – To encourage those with low and moderate incomes, an eligible individual who makes a qualified retirement savings contribution shall be allowed a matching contribution. Starting in 2027, the government will provide 50% credit on savings up to $2,000 ($1,000 maximum credit). Credit is available regardless of whether the taxpayer has an income tax liability. 

11. Student-Loan Matching Program – Student loan payments will be treated as Employee Elective Deferral for purposes of matching contributions.

12. Increase Qualified Longevity Annuity Contract (QLAC) Contributions – Up to $200,000 can be contributed into a qualified longevity annuity contract. The prior 25% of the income limit is eliminated.

13. Reduce RMD Excise Tax – Reduced excise tax for failure to take required distributions from 50% to 25%.

14. Expand Qualified Charitable Distributions (QCD) – The QCD rules are expanded to allow for a one-time $50,000 distribution to a charity through a split-interest entity, including charitable gift annuities, charitable remainder unitrusts (CRUT), and charitable remainder annuity trusts (CRAT). Beginning in 2024, the $100,000.00 annual limit on QCDs will be indexed for inflation. 

15. Annuities in 401(k) Plans – Removal of barriers to the use of annuities in qualified plans by exempting certain annuity features from actuarial tests that would otherwise prohibit their use.

16. Retirement Savings Lost and Found – The Labor Department will create a national online searchable lost and found database. This database will help individuals locate retirement savings they might have trouble otherwise locating.

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Taking advantage of these provisions can allow you to save more for retirement and make an even greater impact with your estate for Kingdom purposes. We know thinking about estate planning can be overwhelming at times, but it doesn’t have to be. 

The Tennessee Baptist Foundation is able to guide you as you plan your estate so you are making decisions that reflect your faith and further the Kingdom of God even beyond your lifetime. Give us a call today or fill out our brief contact form at any time to learn more. We’d love to help you leave a legacy that makes a difference.

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Ready to get started?

You can reach us via phone at (615) 371-2029 or fill out this form.

Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Why You Need to Know What’s in Your Estate

by Rev. Bill Gruenewald

Knowing what assets you have is critical for effective estate planning

My grandmother made the best apple pie I have ever tasted. I would watch her take the ingredients and put them together, and it was a sight to behold. However, she did not have all the ingredients written down on the recipe she handed down to my mother. So, after she passed away, my mother, my sister, and even my wife tried to make my grandmother’s pie. These pies were pretty good, but they still did not taste like my grandmother’s. Why? We did not have all the ingredients!

You can develop a pretty good estate plan, but if you do not know all the ingredients (aka “assets”) it might not turn out the way you intended. Knowing what makes up your estate is very important because what you desire to accomplish with the distribution of assets at your death depends on the type of asset to be distributed.

You have several classifications of assets in your estate: there are liquid assets (checking and savings accounts) and non-liquid assets (real estate, investments, retirement plans, and life insurance). While all of these assets make up your estate, they are handled differently when they are distributed at your death. 

Let’s look at two asset examples:

• Personal Property – These assets are part of your gross estate and the portion of the estate that is handled in the probate court. They are distributed to the person(s) you name in your Last Will and Testament (LWT). That one is pretty easy.

• Life Insurance – This asset is also part of your gross estate, BUT it is not a part of your probate estate. Why? Because this is an asset that passes after your death to a named beneficiary. 

So, you may ask, “What’s the big deal? Why do I need to be concerned about asset classifications?” It becomes a big deal if what you intend to do based on what you have written in your LWT is not accomplished because you did not consider the types of assets you have and how they are passed to beneficiaries. It could be that the bulk of your estate actually passes outside the terms of your LWT. Let me show you how this plays out:

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Let’s say Mrs. Jones is widowed with 2 grown children. She has an estate made up of $20,000 in a checking account, some furniture ($5,000), a vehicle ($5,000), and a life insurance policy worth $100,000, which each child is 50% beneficiary of the policy.

If we add all these together, her estate would be worth $130,000. In her LWT, she wants 30% of her estate to go to her church and 70% to go to her children. So, what she intends based on the sum of her assets is that $39,000 go to the church and $91,000 to her children.

But based on her assets and how they are classified, will her wishes be carried out? Let’s see!

The life insurance (per the beneficiary designation that calls for the policy to be divided equally between her children) will go to her children and not be a part of her probate estate. So, they get the $100,000.

What assets are left? The remaining assets $30,000 make up her probate estate. Based on her LWT, then the church would get 30% ($9,000) and the children would get 70% ($21,000). So the church ends up with $9,000 and the children get $121,000. Is this what she intended? Not per her LWT. She did not take into account that the life insurance would pass to her children outside her probate estate.

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This is a scenario that happens often in estates. Life insurance, retirement accounts, and annuities are normally controlled by your beneficiary designations and not your LWT. If Ms. Jones had looked at the type of assets she had, she could have made different decisions to carry out her true wishes.

So how can you avoid issues like this? Download our 10 Minute Estate Audit, then contact us and we can walk you through the process of putting your Estate Plan in order. We are ready to help you! CLICK HERE to get started.  

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Ready to get started?

You can reach us via phone at (615) 371-2029 or fill out this form.

Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Fund the work you believe in with an IRA Charitable Rollover

by Rev. Bill Gruenewald

Save on taxes by funding Kingdom work

The best way to maximize most retirement accounts, like a traditional IRA, is to allow it to mature and accumulate earnings. However, at age 72 it is mandatory for a person to take a Required Minimum Distribution (RMD), which is taxable.

The best way to avoid these high taxes on your Required Minimum Distribution is to donate your RMD to a qualified charity that you trust.

This activity is called an IRA charitable rollover.

The Tennessee Baptist Foundation’s expert team can serve you and your financial planner by establishing a charitable rollover that will fund work worthy of your finances while you save on taxes.

You can invest in a foundation that includes church evangelism projects, college and seminary scholarships, and endowment funding for churches and associations across our state.

What is an IRA Charitable Rollover?

Traditional IRAs now require you to make RMDs once you reach age 72. Because you did not pay federal income tax when you contributed the money to your account, you need to pay tax when you withdraw it. However, you can avoid the tax on that distribution by making a donation directly from your IRA to your church or any charity. That’s an IRA “charitable rollover,” and is also called a qualified charitable distribution (QCD). 

So instead of paying tax on that money, it goes directly to a cause you believe in. This also has can reduce the impact of some tax credits and deductions like Social Security and Medicare.

The IRA Charitable Rollover was first made available as part of The Pension Protection Act of 2006 (PPA) and was permanently extended in December 2015.

How Qualified Charitable Distributions Work

You must be at least 70 ½  years old to make a QCD, and the maximum annual exclusion for QCDs is $100,000. You can deduct up to $100,000 in charitable contributions from your income taxes. If you file a joint return, you and your spouse each have a $100,000 exclusion limit. You will need to pay income tax on any distributions above the exclusion limit. Note also that it is possible for a QCD to cover your entire RMD.

The donation must be made directly from your IRA to a qualified charity. The money never touches any other of your personal accounts. A charity can qualify for a tax-deductible, qualified charitable distribution if it is a 501(c)(3) organization. Private foundations, donor-advised funds and supporting organizations do not qualify.

How is the QCD Reported on Your Taxes?

You will report a QCD the same way you would report a normal distribution from your IRA. Use Form 1099-R for the tax year that you made the distribution

On your Form 1040, report the total amount of the QCD on the line for IRA distributions. If the amount covered your entire RMD, enter a zero on the line asking for the taxable amount.

If you made a QCD but it did not cover your entire RMD, you will need to make an additional distribution. You will need to file Form 8606, Nondeductible IRAs, to report showing that you made this additional distribution.

In Summary

A QCD, also called an IRA charitable rollover, allows you to lower your tax bill if you contribute money directly from your traditional IRA to a charity. The charity needs to be a 501(c)(3) organization, and you can deduct up to a limit of $100,000. You have the same personal limit if filing a joint return. You will need Form 1099-R to report this distribution. You will also need to file Form 8606 if your QCD doesn’t cover your entire RMD.

The Tennessee Baptist Foundation team will give expert and easy-to-follow hands-on assistance in setting up your charitable rollovers that will continue to fund outreaches throughout communities across our beautiful state.

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Ready to get started?

You can reach us via phone at (615) 371-2029, email us at tbf@tnbaptist.org, or fill out this form.

Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any trans

The Importance of Christian Estate Planning

By Rev. Bill Gruenewald, President-Treasurer

An estate plan is an essential preparation everyone must have. But what does it mean to create one rooted in your faith? There are many benefits to Christian estate planning, but I believe there are three foundational reasons why every believer should spend the time to diligently create an estate plan that will benefit both the loved ones they leave behind and the Kingdom.

1. Everyone has assets that must be distributed at death
2. It is an act of biblical stewardship
3. It is a way for Christians to leave a legacy after they’re gone

1. Christian Estate Planning Starts With A Distribution of Assets

No matter your economic level, when you leave this life, the assets you have accumulated must be distributed somewhere. You might’ve heard the saying, “I have never seen a hearse pulling a U-Haul!” That is the reality. We do not take the material things of this life with us to Heaven. 

That being said, we all need to make provisions to pass along the possessions we have. While one might think they do not have very much, once you start listing all your assets on a sheet of paper, most will soon realize they have more than they thought. There are some assets that will be distributed based on the titling of the asset or beneficiary designation, like real estate, life insurance, and retirement accounts. 

An Estate Plan Starts with a Last Will and Testament

Beyond the aforementioned assets, a Last Will and Testament is the best and most common way to distribute the majority of your possessions. If you die without a Will, the State of Tennessee will determine how your assets will be given away. So, it behooves all of us to have our own plan in place.  

If you’d like to learn more about Last Will and Testaments, how they work, and how to make one, click here to read our article on the subject.

Everyone has an estate, but not everyone has a plan!

Tennessee Baptist Foundation

2. A Faith-based Estate Plan is an Act of Stewardship

The Bible contains over 2,000 verses related to money and stewardship. The Holman Bible Dictionary defines stewardship as: Utilizing and managing all resources God provides for the glory of God and the betterment of His creation.

One of the key words in this definition is managing. That is what the word stewardship means. We are the managers of the resources God has given us. Every believer in Christ must understand the principle that God owns everything. Psalm 24:1 states, “The earth is the Lord’s, and the fulness thereof; the world, and they that dwell therein.” (KJV) A good manager will make provisions for things that are under his care. That does not stop at death. To be a faithful manager we must make plans to pass along the assets under our care so that they can be used to help others and proclaim the gospel of Jesus Christ. We all must be faithful stewards of our resources!

3. An Estate Plan Leaves a Legacy of Faithfulness

What do you want to be remembered for? I think it is intrinsic in all of us to leave some legacy to our family and friends. One of the great opportunities we have as Christians is to leave something from our estate that will take the gospel to the next generation. The Tennessee Baptist Foundation is available to help any Tennessee Baptist learn how they can take care of their family and bless the next generation with a faith-based estate plan. Psalm 145:4 states, “One generation shall praise thy works to another, and shall declare thy mighty acts.” (KJV) What greater way to help the next generation than leaving resources for them to proclaim the cause of Christ?

 It’s your faith and your legacy! Give us a call. Let us help you leave that legacy.

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Ready to get started?

You can reach us via phone at (615) 371-2029 or fill out this form.

Please note that the advice offered in this article is not intended to be construed as tax, legal or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice for the reader. You should consult your own tax, legal and accounting advisors before engaging in any transaction.