Wrong or Right? 2022 Market Forecasts Review and Secure 2.0
by SGL Financial
Our 2 Cents – Episode #123
The Financial Truths in Grandma’s Wisdom
Tesla stock has received quite a hit this year and we’re diving into all the stats. Next, we look back on market forecasts from the start of 2022 to see how right or wrong they were. We wrap up the show with some insight into Secure 2.0 and the ways it will impact retirement planning.
- The Non-Stop Tanking of TSLA:
- Staggering stats on Tesla’s stock price and YTD performance
- How activity like this relates to the greater picture of “concentration risk”
- Is this the bottom for the stock or will we see more declines?
- Review of 2022 Forecasts: Wrong or Right?:
- Looking back at Wall Street’s 2022 targets for the S&P 500
- Many unpredictable events happened this year which shows just how hard it is to guess what the market will do
- Secure 2.0’s Retirement-Related Provisions:
- 401(k) impacts such as changes to enrollment, plan access, “catch-up” contributions, employer match options, and more
- Age increases for RMDs next year and over time
- Changes to the use of money in 529 college savings plans
- Plus more!
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Podcast Transcript
Announcer: You’re listening to Our 2 Cents, with the team from SGL Financial, building wealth for life. Steve Lewit is the president of SGL Financial. Gabriel Lewit is the CEO. They’re here to discuss all the latest in financial news, trends, strategies and more.
Gabriel Lewit: Good morning, good evening, good afternoon, everybody this is Gabriel Lewit, joined with Steven Lewit. Say hello.
Steve Lewit: Hello.
Gabriel Lewit: We are coming to you, well, live again here for us on our last show of the year.
Steve Lewit: It is. Isn’t that exciting?
Gabriel Lewit: It is.
Steve Lewit: Yeah. I always like the beginning of a new year.
Gabriel Lewit: I like the end of the year, and I like the beginning of the year, and they’re not too far apart.
Steve Lewit: That’s usually the case. Let me see. End, beginning, they follow each other.
Gabriel Lewit: Yep, I like both for different reasons. One feels like, man, a good movie coming to an end and the other is like, oh man, the start of a great movie. I can’t wait to see what happens.
Steve Lewit: Yeah. I really had a nice year this year. You have one of those years, that is a good year, because some years are tough. This year has been a tough year.
Gabriel Lewit: But I agree. I think for me and you and business we had a pretty very good year, actually.
Steve Lewit: Yeah. A lot of our clients had good years. It was one of-
Gabriel Lewit: Those non-money years.
Steve Lewit: Non-money years.
Gabriel Lewit: Yes.
Steve Lewit: Yeah. It was just one of those years where we got a lot of positive stuff going on, but I always feel like the new year will be better.
Gabriel Lewit: Well, that’s the future or the unknown. What is ahead of us? Let’s hope it’s better. We always want things to be better versus worse.
Steve Lewit: Yeah, but it’s something about starting fresh or starting… That’s why people say, “oh, I’m going to work out” New Year’s resolutions.
Gabriel Lewit: I say that every year. I said that at the start of this last year.
Steve Lewit: Yeah, I know.
Gabriel Lewit: You don’t know many times I think I’ve worked out. I think I can count it on two hands.
Steve Lewit: I didn’t want to bring it up.
Gabriel Lewit: Yeah. Well, I know you called me puffy once on the show, this show.
Steve Lewit: Did I do that?
Gabriel Lewit: I think that was in 2022. Yeah. So I know how you feel.
Steve Lewit: I’m sorry, puffy.
Gabriel Lewit: All right. Well, we’ve got, I think of course, as always a great show lined up for you here today. We wanted to talk about predominantly the Secure 2.0 Act that’s coming out. Well soon to be coming out. But before we get into that, I wanted to talk a little bit about just some interesting tidbits, if you will. Okay. And so keep your show on to learn more about the 2.0 Act here in just a few minutes.
Steve Lewit: Is that a teaser?
Gabriel Lewit: It was a teaser.
Steve Lewit: I like it.
Gabriel Lewit: I need more practice on that. I think it wasn’t as polished as I meant to be.
Steve Lewit: It wasn’t like a great tease. There’s so much going on in the Secure Act. I can’t wait to get to that. But a couple of things first.
Gabriel Lewit: Well, I’m an ever, ever slightly shade under the weather, and if I laugh, I start coughing.
Steve Lewit: Well, your family has been, oh man, had colds for about three months.
Gabriel Lewit: So, I’m warding it off. But yeah, I just saw an article yesterday, so it prompted me to want to talk about it today, which is the nonstop tanking that is Tesla.
Steve Lewit: Oh my gosh. Yeah.
Gabriel Lewit: Okay. And why did I want to talk about this? Well, one is just interesting and we like to talk about interesting things on the show. Two, it’s also one of my favorite things to quote-unquote pick on, if you will, are individual stocks. Because I’m a big believer for most people that mutual funds and ETF based investments and asset allocation diversification are really important.
And there are a lot of people that still like to dabble or gamble, if you will, with individual stocks, but they don’t think that they’re gambling or taking extra risk. They think, hey, I’m investing in terrific companies and what could go wrong.
And so, I do like to show examples of big-name companies when they go through excessive periods of volatility to help showcase the risk that is involved with individual stocks and why buying mutual funds and ETFs for most people is going to be your better option.
Steve Lewit: Well, I wanted to just add to that, Gabriel, you said you’re a big believer. The reason you’re a big believer in diversification and asset allocation and broadly owns mutual funds and ETFs is because all the research says that if you have a broadly diversified portfolio and it’s well done, and not that you just leave it alone, but you manage it as a diversified portfolio through the ups and downs, long-term 10, 15 years, you’re going to win better. You’re going to do a better job, have better returns than somebody who’s picking individual stocks.
Gabriel Lewit: Yeah. So let me read some tidbits from the article here that will help illustrate this point, and we’ll talk a little bit about this as we go along. So Tesla, if you haven’t been following, has been having a rocky year. And in fact, I’m going to give you the statistics here. In the last month, Tesla has dropped 41%.
Steve Lewit: Yeah. Can you say that again?
Gabriel Lewit: 41%.
Steve Lewit: Okay.
Gabriel Lewit: In one month.
Steve Lewit: Just in case people didn’t hear it.
Gabriel Lewit: The last three months, it’s down 60%.
Steve Lewit: Would you say that again?
Gabriel Lewit: 60%.
Steve Lewit: I’ll stop now.
Gabriel Lewit: And year to date, the Tesla stock is down 70%, seven, zero. Okay. Compared to the S&P 500, which is down 19%. And another comparison would be NASDAQ, which of course is a broader basket of stocks, same as the S&P 500, NASDAQ’s down about 33%. So, Tesla is down almost double the amount of NASDAQ again, minus 70% on the year. Now, what was interesting to me is going back last year when the market was bulling, okay, that’s my technical term for bull running, bulling.
Steve Lewit: I won’t go there.
Gabriel Lewit: What now?
Steve Lewit: Well, that sounds like a lot of bull, but that’s okay.
Gabriel Lewit: Well, I was going to say, do you have some like-
Steve Lewit: No, no, no.
Gabriel Lewit: I’m not going there either, inside joke folks. But yeah, so people were saying, “oh gosh, I would never sell my Tesla. I mean, this thing is amazing. It’s going to just keep going up forever.” And people were just really, really, I think had their blinders on that there’s any risk that could ever go wrong with this stock because it had done so incredible over the last five years.
Well, this is an example of the risk that’s inherent in owning individual stocks in large quantities. So now, if this had $10,000 in Tesla and it went down to $3,000, you might not be feeling the pain as much as if you had a $100,000 and it’s down to $30,000. Okay. So that’s the idea here is individual stocks carry an outsized level of risk.
And there’s all sorts of reasons why Tesla is struggling right now, which we has to do I think in part with Musk buying Twitter.
Steve Lewit: Twitter is a big deal.
Gabriel Lewit: Selling billions of dollars’ worth of shares to fund Twitter, all sorts of other ramifications as a result of that. People wondering, I think a Tesla shareholder’s wondering who’s running my company, but I would think that would be a valid question. If you came to me and said, “Gabe, I’m leaving here to go run what’d you call it, menicures?
Steve Lewit: Menicures, yes.
Gabriel Lewit: On a prior show, folks, Steve wanted to open up a Menicures.
Steve Lewit: A place for men to go for manicures. This is a great idea. We call it Menicures. Katie, isn’t that a great idea?
Gabriel Lewit: All right folks. I’m coughing because I’m laughing now. Told you that was going to happen.
Steve Lewit: Uh-oh.
Gabriel Lewit: If you said, “Gabe, I’m going to go leave SGL and go run Menicures.”
Steve Lewit: I thought you were like a visionary
Gabriel Lewit: I would say that wouldn’t be good for my company.
Steve Lewit: Might be better, I imagine.
Gabriel Lewit: Well, yeah.
Steve Lewit: Might make billions of dollars.
Gabriel Lewit: It’s true.
Steve Lewit: We could buy Twitter.
Gabriel Lewit: Well, if you were a shareholder in SGL and you had confidence in Steve Lewit to run the company and then Steve Lewit jumped ship to run Menicures, you may not be as excited.
Steve Lewit: That’s exactly right.
Gabriel Lewit: So that’s part of the issue that’s going on there. But really the main reason I wanted to bring this up is just to again, showcase that risk of individual stocks. And it’s not that I’m 100% against individual stocks, folks, it’s just that you want to limit your exposure because it’s called concentration risk. If you had a ton of your eggs in this Tesla basket, your basket is missing a lot of eggs.
Steve Lewit: Well, how many Gabriel? This is kind of rhetorical? How many people do we talk to that say, “I’ve made a killing on my Apple, I’ll never sell my Apple. I worked for UPS, I own tons of UPS stock. It’s been great. I’ll never sell that or McDonald’s,” and the list goes on and on?
Gabriel Lewit: Well, I’ve got a client right now that has a substantial amount of IBM stock and is convinced that nothing could ever go wrong with IBM. It might be a terrific long-term company that’ll stay around for another 30 years and nothing will ever happen to it. But you are concentrating a large amount of risk in that one basket.
Steve Lewit: You mean like Sears?
Gabriel Lewit: Well, all sorts of companies. So this is the idea of diversification. It’s a risk-reducer as well as a performance-enhancer. But it’s number one focus is if you’re in a diversified portfolio, even if it’s as simple as diversifying across 500 companies in the S&P 500, you’d only be down 19% this year instead of 70%. Now the counter-argument would be, well, you wouldn’t have got the same upsides as you had in Tesla, but most of those gains have probably by now been wiped out.
Steve Lewit: For sure. So Gabriel, what is it about individual companies or scoring big that makes people want to hold on to a stock that they think is going to perform forever? It’s like the market’s going up and everyone says, “Well, it’s going to come down, but not now.”
Gabriel Lewit: Well, you and I know there’s two primary emotions that drive investor behavior. There’s two of them. And you know what they are.
Steve Lewit: I do.
Gabriel Lewit: Do you mind?
Steve Lewit: I’m not. No, I’m not telling you.
Gabriel Lewit: Do you mind sharing?
Steve Lewit: No, I’m not going to tell you. You tell everybody.
Gabriel Lewit: I’ll say one and you say the other.
Steve Lewit: Okay.
Gabriel Lewit: I’ll start. Okay, I’ll start.
Steve Lewit: You start.
Gabriel Lewit: You start.
Steve Lewit: Fear.
Gabriel Lewit: Greed.
Steve Lewit: Greed.
Gabriel Lewit: Fear. There we go.
Steve Lewit: There we go.
Gabriel Lewit: Look at that. We’re on the same page.
Steve Lewit: How about it?
Gabriel Lewit: Yeah. So those are the two. Why do people go to the casino and plunk down money on the casino table other than fun?
Steve Lewit: Well, it’s greed. They want to win.
Gabriel Lewit: They want to make money.
Steve Lewit: They want to make money. But here’s the deal. They make money and then they don’t walk away from the table.
Gabriel Lewit: Which is what? Which is more greed.
Steve Lewit: Greed. They’re not fearful.
Gabriel Lewit: Greed squared.
Steve Lewit: They’re not fearful enough of losing it.
Gabriel Lewit: Yeah. Well a lot of times what happens here is you get really enamored with individual stocks and a diversified fund portfolio actually helps, I think eliminate that enamored-ness type feeling, right? Because you know that you’re diversified across hundreds of different positions. So I think there’s a lot of advantages there. Now, the main reason again, people will buy an individual stock is they think they’re going to make a bigger killing. They’re going to beat the market with said individual stock.
Steve Lewit: And they might.
Gabriel Lewit: An they might.
Steve Lewit: Over a period of time and then they might not Tesla over another period of time.
Gabriel Lewit: And you look at Meta, Facebook this year down huge.
Steve Lewit: Huge.
Gabriel Lewit: Actually, producer Katie’s here with us, of course. Do you mind typing in there Meta? Let’s see what Meta’s down so far this year.
Steve Lewit: Yeah, Katie did a great countdown this morning. She was like right on top of 3, 2, 1. It was great, Katie.
Gabriel Lewit: Well, let’s see here. Hold on. We’ve got meta is down 65%.
Steve Lewit: Only on the year.
Gabriel Lewit: Okay. So Tesla is now worse than Meta on the year.
Steve Lewit: When you really stop to think about, I know these numbers, but I haven’t really stopped to think about it. That’s such a huge amount. How much money did Elon Musk lose? I think I was it in the article somewhere? I read like $140 billion.
Gabriel Lewit: His net worth is down quite a bit. Let’s put it that way.
Steve Lewit: Yeah, $140 billion.
Gabriel Lewit: Yeah. He’s no longer the world’s richest guy. The poor guy. Yeah. Terrible.
Steve Lewit: Feels so bad for him.
Gabriel Lewit: Excuse me folks. I’m laughing so I’m coughing. All right, so that was all I wanted to mention. Just some interesting statistics there on some individual stocks. Again, just keep those in perspective folks. If you’re very individual stock heavy, just be careful because you’re playing a gambler’s game.
Steve Lewit: So, I know we’re going to get this question sometime later today. So should I go out and buy Tesla now since it’s so low? So what do you want?
Gabriel Lewit: Well, actually, the tail end of this article says the negative optics are still very much here.
Steve Lewit: Nobody will predict the bottom of Tesla.
Gabriel Lewit: So, it would not be a good idea, I would say, to go run out by Tesla today. Which means there’s even more downside pain from the 70% that it’s down currently.
Steve Lewit: Exactly.
Gabriel Lewit: Yeah. No good. All right. So the next thing I wanted to talk about here is-
Steve Lewit: Before we get to the big topic, the real topic you got to do the teaser again.
Gabriel Lewit: Well, we’ve got a great topic coming up in just two minutes.
Steve Lewit: Good for you.
Gabriel Lewit: Okay. This is actually relevant to what we are just talking about. One of the things that you and I also love to do, and so does the lady who’s writing this article, is one of our traditions is to look at all the predictions for the year for the stock market. And then we like to pick on how wrong they are.
Steve Lewit: Yes.
Gabriel Lewit: It’s a very fun game to do, because of course you guys all know this. Clients come to us, and the first question is, “well, what do you think the market’s going to do this year?” And if you’ve talked to me, I’m very fond of saying, you know I don’t know. In fact, my spiel as I like to pick on all the people that do predict what the market’s going to do.
So, here’s some interesting data. Julie here from the article, took a list of all the stock market forecast from the prior year and averaged them together. Okay. And the median, as of November 2021, the median of the top 12 forecast she looked at was the S&P ending the year at 4825.
Steve Lewit: Amazing. It is.
Gabriel Lewit: Now, do you know where it is today, Mr. Lewit for listenership?
Steve Lewit: I know what it’s off, what is it, 38 or 3800, right?
Gabriel Lewit: 3800. So they were a little bit off.
Steve Lewit: A little bit. Yeah. But that’s the average. The top one probably had the market way up and the bottom one had a way down. So somebody was way, way off.
Gabriel Lewit: Well, it does say that here, actually the highest was 5300 from BMO Harris. That guy probably isn’t working there anymore.
Steve Lewit: I bet he is. I bet he is.
Gabriel Lewit: And the lowest was 4400 from Morgan Stanley.
Steve Lewit: Yeah, there you go folks.
Gabriel Lewit: Yep. And it was again, 3829. Okay. If we’re being precise. All right. So that’s a little bit of a differentiator, huh?
Steve Lewit: I think so.
Gabriel Lewit: What does that mean? What does that mean to you, Mr. Lewit, and to our listeners, when you read these market forecasts?
Steve Lewit: I can’t say what I’m thinking but let me reframe this. How do I say this? Folks, do not take this the wrong way, but I’m going to go out on a limb here. But most folks are naive about the stock market, and they listen to predictions by big name companies because they think they know something that you don’t. And the fact is, as much about the market as they do. They don’t know anything that’s going to happen and neither do you and neither do we Gabriel.
Gabriel Lewit: I think we are a step ahead by actually admitting that we don’t know what it’s going to do next year.
Steve Lewit: Yeah. Imagine if I’m Morgan Stanley, big Morgan Stanley or BMO or Wells Fargo, and I got these billions of billions of dollars, and someone comes to me and says, well, what do you think the market’s going to do? They would never say, I don’t know.
Gabriel Lewit: It’s so funny they feel this obligation to have to provide a forecast for various reasons, even though their forecasts are always wrong.
Steve Lewit: Well, that’s how you get-
Gabriel Lewit: And then throughout the year, all they do, oh we’ve revised our forecast. Oh, okay. We’ve joked about this before on the show. I mean, I think it’s going to be sunny today, I go outside and it’s cloudy. Oh, I’ve revised my forecast. I can see the clouds. I think it’s going to be cloudy today.
Steve Lewit: Well, I’m not picking on Morgan here, but we had an article that had two Morgan senior executives in one saying the market’s going to go up.
Gabriel Lewit: I think it was Chase.
Steve Lewit: Oh, Chase. Yeah. I’m sorry. The market’s going up, and the other senior executives said, no, the market’s going down.
Gabriel Lewit: So, their left hand isn’t even talking to the right hand, which is just funny. Well, that was all I wanted to mention about individual stocks and markets today. Just some interesting tidbits, if you will. And as I mentioned, the most important part of our topic here today.
Steve Lewit: Well, before we get to this most important part of the topic in 30 seconds, stay tuned everybody.
Gabriel Lewit: Oh yeah. We’ve got to give you our call in number.
Steve Lewit: There is a great quote in here. I’m an economist and I had forgotten this quote from John Maynard Keynes, who was one of the greatest economists, but economists never get anything right. It’s always what if and maybe and stuff. And he said, “Better to be roughly right than precisely wrong.” So that’s how all these predictors think. They’re just hoping.
Gabriel Lewit: Yeah. One of my clients wrote in, I’m probably going to butcher the joke here to one of our shows and says, “The economists make the weather forecasters look good.”
Steve Lewit: Exactly. Well, the big deal in economic circles is if you’re an economist, everything is what if, what if this, what if that, you know, I can tell a joke, but I won’t.
Gabriel Lewit: Yeah. All right.
Steve Lewit: It’ll take too long.
Gabriel Lewit: Can we talk about the Secure 2.0 yet?
Steve Lewit: You don’t want to hear the joke?
Gabriel Lewit: Is it an appropriate joke? All right. If it is than you didn’t say yes.
Steve Lewit: Yeah, it’s appropriate. Here’s the deal. A priest, a rabbi, and an economist are on an island and they have a can of beans. That’s all the food they have. So they’re trying to figure out how to open the can of beans. So the priest says, “Well, I’m going to pray to God to open the can of beans.” And the rabbi says, “Well, I’m going to follow the laws of God to open the can of beans.” And the economist says, “Well, what if we had a can opener?”
Gabriel Lewit: I was going to say, I would say I’m going to go find a rock, right? Bashed the can against-
Steve Lewit: That’s how economists think. What if I had-
Gabriel Lewit: Well, that would be helpful, wouldn’t it?
Steve Lewit: Yes.
Gabriel Lewit: Yes. The can opener goes very well with the can of beans.
Steve Lewit: Yes.
Gabriel Lewit: What you know, didn’t answer on this joke. What did the can of beans have a pull cap?
Steve Lewit: Right? It had a pull cap. They couldn’t figure that out.
Gabriel Lewit: Yeah, that would be really ideal. Anyways, okay. All right. So Secure 2.0. Let’s talk about this. You may or may not have heard, but basically there is a Secure Act in 2019 that has some major changes to the U.S. retirement system. And there is now a Secure 2.0, which was recently pass as part of the omnibus bill, the appropriations Bill with $1.7 trillion omnibus appropriations bill.
Steve Lewit: Did we look up the omnibus to get an accurate description. What is omnibus? Did we-
Gabriel Lewit: It was basically saying-
Steve Lewit: Global, right?
Gabriel Lewit: Kind of, yeah. Like including lots of different things, so very broad. And so, this omnibus bill that includes the Secure 2.0 was approved in the House on Friday, and the Senate approved it on Thursday of last week. And so, what that means, it’s going to head over to Mr. Joe Biden to sign off on.
Steve Lewit: Which he will.
Gabriel Lewit: Which he will. So that’s why this is in the news, because effectively what we know is that this is going to be on the horizon, these provisions that we’re going to talk about here in the secure two point.
Steve Lewit: And there are lots of them.
Gabriel Lewit: And there are many, many of these provisions. So it’s quite a broad omnibus package here of different provisions.
Steve Lewit: Well said.
Gabriel Lewit: Well, I wanted to use that in a sentence. Okay, so what’s it going to address? Well, predominantly retirement security, retirement rules, savings rules, withdrawal rules, credits, tax, tax credits, all sorts of different things. And so what we want to do today was walk you through these. And some of these I think will continue to be unpacked as more… I looked at the first article I clicked on, had a copy of the bill itself.
Steve Lewit: How many pages?
Gabriel Lewit: I might be butchering this. It was either 700 or 1700. It was just a very large number of pages that somebody out there takes the time to read and digest. Yeah. Actually, what really jumped out at me is somebody wrote this.
Steve Lewit: A lot of people wrote it.
Gabriel Lewit: Like whose job is that? That sounds terrible.
Steve Lewit: That’s why it’s so big.
Gabriel Lewit: That sounds terrible. What a job writing that thing. Well, anyways, there’s good information in there, people are diving into it. But for now we have the highlights and the best ofs for you. And again, these are all designed to build upon the Secure Act of 2019, which is why these are Secure Act 2.0.
Steve Lewit: Where should we start?
Gabriel Lewit: Well, we’ve got a laundry list here. I think we should just rattle off down the list through them. Okay. So how about the first one here requiring automatic 401K enrollment?
Steve Lewit: Yeah. When I first saw that I said, “What?” They’re going to make people say the life-
Gabriel Lewit: You did in fact say what. You were like, “What?”
Steve Lewit: I did, that doesn’t make sense. They’re going to force people to save by automatically enrolling them in their 401k. But as you explained to me and did a nice job, by the way, you said they’re automatically enrolled, which right now, if you join a company, you have to enroll. You can opt in. What they’re going to do is switch that around. They’re going to say you are in, but you can opt out.
Gabriel Lewit: That’s my understanding. Yes.
Steve Lewit: That we think folks.
Gabriel Lewit: That’s how we read it, and I believe is what the implementation was implying, is not that they’re forcing everybody to save, but they’re going to automatically enroll you and the hopes is that when you see your after-tax paycheck for the first time after your deductions, you may not even realize that you’re saving money for retirement. And you’ll be comfortable with the amount that you’re receiving.
Steve Lewit: Or you might feel okay about it.
Gabriel Lewit: Well, that’s what it means. So let’s say you get four grand after everything, you’re like, oh, I’m good with my four grand from my paycheck. That will already have included some 401k savings. So if you’re comfortable and you just don’t even see it, the whole idea is if you don’t see it, you won’t miss it. And so you’re going to automatically save and not even realize you’re saving the money.
Steve Lewit: And the whole idea behind this is, I think a very noble idea is that, look, there are a lot of lower- and middle-income folks that will not elect to go into their 401k because they think they can’t afford it, when in fact they can. Once you get in a habit of saving, you find that you really can’t afford to save, even if you aren’t a lower income. I mean some people can’t. And so that’s what they’re encouraging and I think that’s very noble.
Gabriel Lewit: Yeah. So I mean, basically it’s a way to help people boost their retirement savings, which is one of the primary mandates of that provision.
Steve Lewit: Well, most people in our country, I believe the number was 60% of people in the country don’t have $500 in the savings account. So that’s an absurdly low number.
Gabriel Lewit: Well, think about it. I mean, let’s say, I don’t know, maybe you’re making $5,000 a month, right? Nothing, maybe nothing crazier or $4,000 a month. If at the end of the day you make $3,900 and this is from your very first paycheck and you don’t even realize you could have another a $100 in your pocket, all of a sudden you’re saving $1200 a year. And that can start to add up for somebody over their career.
Steve Lewit: For sure. For sure. Yeah. I like it.
Gabriel Lewit: All right, next item here is very relevant for many of you out there listening, either currently or in the near future, but the age of RMDs will be increasing. Why did you look at me funny?
Steve Lewit: Well, because you said those of you that are listening currently or in the future, and I don’t if they’re listening, they are listening currently.
Gabriel Lewit: I think there is an implied comma there.
Steve Lewit: Oh, I didn’t-
Gabriel Lewit: Those of you listening, it will impact you either currently or in the future.
Steve Lewit: This will impact you, but you can’t be listening currently and in the future.
Gabriel Lewit: That is correct.
Steve Lewit: Yes. Okay. That’s why I gave you a strange look because I was trying to figure out.
Gabriel Lewit: I’ll have to rewind and see what I actually said.
Steve Lewit: It’s like that commercial where you throw the red flag? Get an instant replay.
Gabriel Lewit: We do need instant replay in here.
Steve Lewit: Katie, we need a replay later.
Gabriel Lewit: Excuse me folks. Coughing here.
Steve Lewit: Will you make it through?
Gabriel Lewit: You made me laugh again. See, that’s what I’m coughing here.
Steve Lewit: I’m sorry. I’m sorry.
Gabriel Lewit: All right. So right now, this year the RMD age is 72. This will make it eventually to be 75 and next year it’ll be 73.
Steve Lewit: That’s correct.
Gabriel Lewit: So, everybody that turned 72 this year got kind of stuck in the middle.
Steve Lewit: Got stuck there, but 2023, it’s 73.
Gabriel Lewit: Yeah. So next year if you turn 72, you’ll no longer need to take an RMD. If you turn 72 this year and then next year you’re 73, you’re still going to have to take your RMD.
Steve Lewit: Do you know how many conversations I’ve had with people saying, you know I’m going to turn 72 next year. What do we do about RMDs?
Gabriel Lewit: Yeah. Well to say you can kick that can down the road.
Steve Lewit: Nothing. We are doing nothing about RMDs.
Gabriel Lewit: And then after that it goes to age 75 in the year well, this is saying 2033. I don’t know if that’s maybe, I don’t know. That might be a typo here. We’re not sure folks. I haven’t read the thousand page-
Steve Lewit: That sounds pretty far off.
Gabriel Lewit: That was very far off. Yeah. So we’ll double confirm that one for you. Naturally as we learn more about this. The other part here is that the penalty for not taking an RMD, because some people don’t even realize they need to take them and they forget about them. And it’s fairly onerous actually, currently it’s currently 50% the penalty.
Steve Lewit: Of the tax.
Gabriel Lewit: Yeah. It’s whopping amount. So the penalty’s going to be reduced to 25% and in some cases 10%. So much, much smaller penalty.
Steve Lewit: Yeah. Just take your RMD folks don’t get a penalty.
Gabriel Lewit: Yeah, it does say here, producer Katie just pulled up another article on Schwab here in 2033, the RMD age will increase again to 75.
Steve Lewit: Well, that’s interesting. So what happens between 70-
Gabriel Lewit: Well, if you’re 73 next year you’re going to have to always take your RMDs. But if you are, I don’t know the exact age, if in 2033 minus 10 years, so if you’re 65 today you won’t have to take an RMD when you turn 73.
Steve Lewit: That is correct.
Gabriel Lewit: You’d be okay.
Steve Lewit: That’s correct.
Gabriel Lewit: Yeah, because I don’t know, maybe I did that wrong. That wasn’t correct. I remind that one to redo it. But you know what I’m saying. There’s going to be a certain age where when you turn 73, you won’t have to take it. It’ll be 75.
Steve Lewit: That’s correct. Okay, got you.
Gabriel Lewit: Interesting. That’s a long way in the future. So I guess the real practical impact here is it’s now 73 for many folks instead of 72.
Steve Lewit: Yeah, you’d be 63 today. In 10 years you’d be 73. But in 10 years the RMD you’d be 75.
Gabriel Lewit: Thank you for that.
Steve Lewit: You’re welcome.
Gabriel Lewit: It’s still early in the morning for us here. I only had one cup of coffee
Steve Lewit: And a bad bottle of water. You don’t want to tell that story.
Gabriel Lewit: We have a long list to finish here. I don’t think we’re going to finish it on time.
Steve Lewit: We’re not going to finish it.
Gabriel Lewit: Okay. There’s also going to be, this one’s quick, we won’t spend too much time here, bigger catch up contributions for older retirement savers. So currently you can put an extra $6,500 in your 401k once you reach age 50. Secure 2.0 would increase the limit to $10,000 starting in 2025 for saver’s ages 60 to 63.
Steve Lewit: Right. So it’s interesting, it’s only for those ages. In other words, if you’re 64, you can’t do that catch up.
Gabriel Lewit: That’s what it sounds like. I guess it then drops back to 65 plus. That’s just very high. It just creates more nuances to have to worry about.
Steve Lewit: So, we need to check on that too, Gabriel.
Gabriel Lewit: Well, I’m assuming this thing is correct here. Well again, haven’t independently read the code.
Steve Lewit: You know about it.
Gabriel Lewit: About you go read the code over the weekend and let us know.
Steve Lewit: Take it with me to California.
Gabriel Lewit: All right. So I mean, good news, if you’re 60 and realizing you haven’t yet saved quite enough, you can sock away a little bit more, which is helpful. Okay, let’s see here, broadening employer match options. So one of the biggest things here is that my understanding of how this will work is that certain employers may opt to match your student loan payments of their employees.
Steve Lewit: Yes. I think this is great too.
Gabriel Lewit: So, if an employee is making large student loan repayments but cannot afford to save in their 401k an employer, I believe the, it’s going to be optional, but I don’t fully understand the nuances here yet, will be able to match that for their employees.
Steve Lewit: So, my understanding is they’re going to look at your student loan payment as if it were 401k contribution and then throw in the match into your, and again, we need clarification.
Gabriel Lewit: Now what’s interesting here is there are certain what are called safe harbor laws for 401ks, where if an employer wants to make sure that highly compensated employees can max out or ownership can max out their 401ks, they have to have what’s called a safe harbor plan, which is a more government controlled matching requirement. It’ll be interesting if these provisions for matching student loan payments get added into the safe harbor rules.
Steve Lewit: So safe harbor, folks, protects employees against the owners of the company getting better benefits than the employees of the company. So you can’t bias it that way.
Gabriel Lewit: Exactly. So that will be interesting to see how that gets implemented. Let’s see, improving worker access to emergency savings. So this is a small, but for some people may be valuable benefit. It will let certain employees withdraw to a $1,000 from their retirement account for emergency expenses without having to pay a 10% penalty before age 59 and a half. And companies can also let workers set up an emergency savings account through automatic payroll deductions with a cap of 2,500. So how that will get invested or where it goes, who knows.
Steve Lewit: Who knows?
Gabriel Lewit: Yep. Increasing part-time workers access to retirement accounts. So part-time workers who book between 599 hours for three consecutive years prior to this, were able to be eligible for their company’s 401k. Secure 2.0 reduces that to two years. So if you work part-time between 500 and 1000 hours for two consecutive years, you will then be able to be eligible for a company 401K plan.
Steve Lewit: And there are a lot of part-time workers that are working part-time, they maybe don’t even need the money or just working that would love to contribute to a 401K and really can’t because they don’t, haven’t logged enough hours to get in.
Gabriel Lewit: But wait, there’s more. In fact, there’s four more, and I’m just going to give you the headlines when we’re running late. Boosting how much you can put into a qualified longevity annuity contract, which most people don’t use. Creating a federal matching-
Steve Lewit: It’s amazing how few people use it.
Gabriel Lewit: Yeah. Creating a federal matching contribution for lower income retirement savers via an existing tax credit.
Steve Lewit: Terrific.
Gabriel Lewit: Changing the RMD-
Steve Lewit: Just to say one thing about that.
Gabriel Lewit: Oh, if you’re an existing low-income retirement saver, you will get an what I understand to be an additional tax credit to potentially help match whatever you’ve saved inside your IRA.
Steve Lewit: The government is going to actually save for you by giving you a tax credit.
Gabriel Lewit: Yep. But you wouldn’t get it unless you actually save in your IRA.
Steve Lewit: That is correct.
Gabriel Lewit: Which is another nice credit for lower income individuals. If you have a Roth 401k, you’re currently not a Roth IRA, mind you Roth 401k, you’re required to take basically some distributions out of that Roth 401k that will get eliminated. If you happen to keep your money in the Roth 401K. Broadening uses for unused college savings money, you will be able to do potentially a rollover of a certain amount of money from an unused 529 plan into a Roth IRA.
Steve Lewit: Which is great.
Gabriel Lewit: Which is kind of cool.
Steve Lewit: Because if your kid doesn’t use the money, you know, don’t want to lose some.
Gabriel Lewit: I read this one doesn’t have the details, but I read a different article on that, that it’s not the full amount. So it’s not like a backdoor way of doing a massive Roth IRA. But there’s going to be a certain amount that you can roll over into a Roth IRA, which is great to set up your kids, et cetera. And then last but not least, helping military spouses get access to retirement plans. So there’s going to be some tax credits for small businesses that let military spouses enroll in their company’s plan, which is interesting.
Steve Lewit: Yeah, I don’t know much about that to be very honest. So I have to look that up.
Gabriel Lewit: Well, I believe we actually have no, I guess it would be active military. I’m not sure what they mean by military spouses.
Steve Lewit: Well, it must be active military spouses. I don’t know. That’s why I don’t know much about.
Gabriel Lewit: Does that mean if they’re not working? Does have to be non-work. Anyways, lots of unanswered questions in here, folks. So we’ll continue to unpack this for you. Sorry we ran a little bit late. Hopefully you stuck with us here for today’s show, but really I think lots of good things in here for retirees.
Steve Lewit: I like it. I like it.
Gabriel Lewit: Now there’s always of course the tax cost.
Steve Lewit: It’s not perfect, but I like it.
Gabriel Lewit: Yeah. How much is this is going to cost taxpayers unknown there. I’m sure some budget company or organization out there will do the cost analysis of all this at some point.
Steve Lewit: And philosophically some people will say, well, it’s just the government more interfering with individual freedom. And I respect all of those.
Gabriel Lewit: But by and large, hopefully for some of you out there, this will create some nice benefits and help you in your retirement. Given that we’re retirement planners I like most of these more than I dislike any of them.
Steve Lewit: So, what are you doing for New Year’s? In 10 seconds
Gabriel Lewit: Attempting to stay up to midnight. How about you?
Steve Lewit: Well, I’ll be in the mountains in California.
Gabriel Lewit: That sounds nice.
Steve Lewit: Attempting to stay up to midnight.
Gabriel Lewit: There you go. All right guys. We’ll have a wonderful, wonderful New Year’s if you’re listening to this on New Year’s or shortly after. We appreciate your listenership throughout the year. I can’t wait to spend more time with you on the show here in 2023.
Steve Lewit: Happy and healthy, prosperous, all good things to all of you.
Gabriel Lewit: Bye now.
Steve Lewit: Bye.
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