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Retirement Planning Insights
2024-2025: A Critical Window for Retirement and Estate Planning
When the closing bell rang at the end of 2023, surging stock market values left retirement accounts bulging. But supersized IRA balances are not necessarily good news.
In a recent webcast The American College of Financial Services held exclusively on its subscription-based learning platform Knowledge Hub+, IRA expert and professor of practice Ed Slott, CPA explained that a sizable IRA is little more than a ticking tax time bomb primed to explode in years to come. That’s because through the required minimum distributions (RMDs) mechanism, IRAs create a stream of taxable income – and the bigger the IRA, the bigger the income stream and its associated tax bill.
“In 2023, we had the highest end-of-year stock values of all time. Prepare your clients for larger RMDs and keep in mind that these may get taxed more heavily in the future,” Slott said. “A large IRA balance is just tax waiting to happen. I always tell consumers: your IRA is an IOU to the IRS.”
“A large IRA balance is just tax waiting to happen. I always tell consumers: your IRA is an IOU to the IRS.”
–Ed Slott, CPA
The 2017 Tax Cuts and Jobs Act (TCJA) cut tax rates to historic lows (see Figure 1); however, these favorable rates are scheduled to expire on December 31, 2025, and Slott argued that – against the backdrop of rapidly rising government debt – we’ll likely see rising tax rates soon. That means individuals taking RMDs can expect rising tax bills, and for those with bulging IRA balances, the tax bite could be particularly painful.
Figure 1: Top Federal Income Tax Rates: A Century Snapshot
Further complicating matters, SECURE Act provisions requiring heirs to empty inherited IRAs over 10 years mean those inheriting today’s large accounts may face onerous annual tax liabilities post-2025. This is especially true for heirs who may be in their highest earning years as they’re required to empty their inherited IRAs.
“In the aftermath of the SECURE Act, IRAs are a horrible wealth transfer and estate planning vehicle,” Slott said. “The whole balance of the inherited IRA is going to be taxed in a shorter window and heirs may only have two years left at today's favorable tax rates.”
“In the aftermath of the SECURE Act, IRAs are a horrible wealth transfer and estate planning vehicle.”
–Ed Slott, CPA
IRAs: A Poor Vehicle for Estate Planning
With tax rates poised to rise, tax-deferred vehicles like IRAs are looking increasingly unattractive, particularly for clients who wish to use their retirement savings accounts to benefit their heirs. Advisors must urgently find new ways to structure estates that deliver larger inheritances with lower taxes.
Fortunately, Slott had some good news for those seeking to implement fresh strategies.
Due to the combined impacts of the TCJA and inflation, 2024 and 2025 offer clients a unique opportunity to pay lower taxes as they restructure their estates. Not only are tax rates low by historical standards, but rising inflation has also inflated tax brackets. This means clients can pay lower rates on larger amounts of income (see Figure 2).
Figure 2: 2024 Tax Rates: Joint vs Single Filing
Marginal Tax Rates |
Married Filing Jointly |
Single |
|---|---|---|
10% |
$0–$23,200 |
$0–$11,600 |
12% |
$23,201–$94,300 |
$11,601–$47,150 |
22% |
$94,301–$201,050 |
$47,151–$100,525 |
24% |
$201,051–$383,900 |
$100,526–$191,950 |
32% |
$383,901–$487,450 |
$191,951–$243,725 |
35% |
$487,451–$731,200 |
$243,726–$609,350 |
37% |
Over $731,200 |
Over $609,350 |
Knowledge Hub+. Ed Slott’s Top Retirement Tax Planning Opportunities for 2024. April 2024.
“Look how much income can come out at 22%, or 24%,” Slott said. “Hundreds of thousands of dollars of taxable income can be withdrawn at these unbelievably low rates, and this is only going to go on for two more years.”
“Hundreds of thousands of dollars of taxable income can be withdrawn at these unbelievably low rates, and this is only going to go on for two more years.”
–Ed Slott, CPA
All of this makes 2024-2025 an opportune time to explore the possibility of restructuring your clients’ estates by migrating assets from tax-deferred vehicles like IRAs to tax-free vehicles such as Roth IRAs or life insurance products.
The idea, Slott says, is to pursue an aggressive, proactive IRA withdrawal strategy focused on reducing the balances held in tax deferred accounts and migrating assets to tax-free options. Instead of simply taking the RMD, clients would withdraw greater amounts and convert the proceeds into Roth IRAs, life insurance, or other vehicles depending on their needs.
Slott acknowledged clients may balk at the idea of taking large distributions and paying the associated tax bills; however, he also pointed out balances held in IRAs are inevitably going to be taxed – the only question is when and at what rate. By choosing to take bigger distributions and pay tax now, when tax rates are low and tax brackets are generous, clients can protect themselves against future tax increases. And by transferring assets to instruments like Roth IRAs or life insurance, clients can create wealth transfer vehicles that enable them to pass on larger inheritances tax-free.
Slott warned that this strategy isn’t necessarily right for every client; charitably inclined clients, for example, may find it preferable to use their IRAs as a vehicle for charitable giving either through qualified charitable distributions (QCDs) or charitable remainder trusts (CRTs). Very high net worth clients, on the other hand, may wish to avail themselves of today’s generous gifting allowances to transfer assets to heirs before their passing.
Advisors should also consider the specific circumstances of each client – clients who may need funds in the short term might not be suitable candidates for a Roth conversion, for example.
“The retirement savings tax rules are the most complex in all the tax code,” said Slott. “They affect almost every client you have. And the laws are not only complex, but they are also unforgiving. We've seen mistakes that have cost clients a fortune and cost advisors their clients. Don't let it happen to you. Be proactive. Learn what your clients need you to know to help them protect and preserve their retirement savings.”
“Retirement savings tax rules are complex and unforgiving. We’ve seen mistakes that have cost clients a fortune and cost advisors their clients. Don’t let it happen to you.”–Ed Slott, CPA
When it comes to retirement tax planning, there are many twists and turns. Want to learn more? Enroll now in Ed Slott & Company's IRA Success, an e-learning experience that helps financial professionals understand the complexities of IRA distribution planning and qualifies for up to 27.5 CE credit hours. You can also find content from Ed Slott, CPA on Knowledge Hub+, now available exclusively to members of The College’s Professional Recertification Program – and coming soon to the general public!
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Practice Management Podcasts
Shares: What AI Knows About Retirement Income
In this episode of our Shares podcast, host Chet Bennetts, CFP®, ChFC®, CLU®, RICP®, CLF® speaks with Eric Ludwig, PhD, CFP® about their shared experience working extensively with AI platforms such as ChatGPT. They’ll revisit key takeaways from The College’s 2023 Retirement Income Literacy Study and how it relates to AI use in financial services, as well as how the emerging science of “prompt engineering” can help.
Eric Ludwig, PhD, CFP® is an accomplished retirement income planning expert, assistant professor of retirement income, and Retirement Income Certified Professional® (RICP®) Program director at The American College of Financial Services. As director of The College’s Center for Retirement Income, he is passionate about developing research and innovative solutions that help investors achieve financial security and personal fulfillment – two essential components of overall retirement wellbeing. Ludwig’s over 10 years of experience as CEO and wealth manager at Stockbridge Private Wealth Management bring a practical and dynamic perspective to academia. As a nationally recognized writer and researcher in behavioral finance and retirement planning, Ludwig has presented peer-reviewed research at the American Council of Consumer Interests (ACCI), AFCPE® Symposium, and CFP Board Academic Research Colloquium. He is on the editorial advisory board of the Journal of Financial Planning.
Any views or opinions expressed in this podcast are the hosts’ and guests' own and do not necessarily represent those of The American College of Financial Services.
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About The College Press
Partnership with Couplr.AI
KING OF PRUSSIA, PA – May 14, 2024 – The American College of Financial Services is proud to announce its strategic partnership with Couplr.AI, a leading provider of AI-powered matchmaking solutions for financial advisors and clients. This partnership offers free advisor profiles for potential consumer matching to all designees in The College’s Professional Recertification Program (PRP). These professionals already have access to innovative tools like The College’s Knowledge Hub+ continuing education platform and marketing toolkits to enhance their practice and professional lives.
The PRP is designed for designees in good standing, ensuring the active status of their credential(s) while providing access to tools, platforms, and programs. With the integration of Couplr.AI's proprietary algorithm, PRP designees can potentially take advantage of a technology platform facilitating meaningful connections with potential clients based on mutual interests and needs.
The College is the exclusive designation-conferring institution or organization that can offer free profiles for Couplr.AI’s technology.
"In today's rapidly evolving financial landscape, it's essential for professionals to leverage cutting-edge technologies to thrive in their practice,” said Jared Trexler, senior vice president and chief marketing and strategy officer at The American College of Financial Services. “Couplr.AI's innovative approach aligns perfectly with our commitment to supporting our lifelong learners."
Couplr uses AI and data science to learn more about what consumers and advisors are looking for in their professional relationship and best matches financial advisors with the ideal potential clients across a variety of human and financial dimensions, fostering stronger relationships and helping to increase advisor success rates. The integration of Couplr.AI's functionality within The College's My Learning Hub will enable PRP designees to access this innovative tool seamlessly.
College designees in good standing can opt-in to the partnership by visiting their Learning Hub (hub.theamericancollege.edu), viewing the "My Designations & Certifications" page from the menu, and clicking the button to share information with Couplr.
“Couplr.AI is all about making connections for financial professionals with consumers, potential clients, that they can aid in their financial journey,” said Derek Notman, founder and CEO, Couplr.AI. “The level of expertise possessed by the alumni network of The American College of Financial Services is unparalleled and we are proud to be a connector for their continued success.”
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ABOUT THE AMERICAN COLLEGE OF FINANCIAL SERVICES
Founded in 1927, The American College of Financial Services is the nation’s largest nonprofit educational institution devoted to financial services professionals. Holding the highest level of academic accreditation, The College has educated over 200,000 professionals across the United States through certificate, designation, and graduate degree programs. Its portfolio of applied knowledge also includes just-in-time learning and consumer financial education programs. The College’s faculty represents some of the foremost thought leaders in the financial services industry. Visit TheAmericanCollege.edu and connect with us on LinkedIn, Twitter, Instagram, Facebook, and YouTube. Discover all the ways you can expand your opportunities with us.
ABOUT COUPLR.AI
The Couplr.AI fintech client acquisition solution was specifically built for financial companies and their financial advisors. Couplr is a byproduct of frustration, first-hand experience, need, potential, data science, and the human connection. Financial advisors and the companies they represent want to help as many clients as possible, but with up to 90% of advisors failing in the first three years this is a constant challenge, yet also a huge opportunity. After 18+ years in the financial services industry as an advisor, founder Derek Notman saw one pivotal issue: a lack of empathy and trust in professional financial relationships, especially for people looking to hire a financial advisor. In other words, lead generation was broken. Knowing that human connection was foundational to success, Derek started the journey to find a solution that truly works. A smart fintech solution matching clients and financial advisors. The result feels magical, but are based on financial psychology, behavioral finance, and math. For more information, visit www.couplr.ai.
Contact
Sarah Tremallo
908-967-0381 / stremallo@jconnelly.com
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From The President Insights
2023-2024 President’s Report
As we roll out this year’s report, I’m also excited to introduce Carol Parlin Prushan, our new senior vice president of advancement and alumni relations. Under her leadership, we’re renewing our focus to expand The College’s impact on our communities.
The Rule of Threes
This year’s President’s Report is a great opportunity to learn more about the impactful initiatives tied to our three strategic focus areas.
1. Specialized Knowledge:
The Innovating for Impact article shows how The College is developing new programs on sought-after topics. This includes a sneak peek at how we’re building the #1 most-requested program you’ve been asking about—plus a way to get on our waitlist for it.
“Successful, continuous improvement is the cornerstone of a strong academic institution. And that will always require assessing existing programs for relevancy and quality, and then adapting as needed. The evolution of the financial services industry also necessitates the updates of existing, and development of new programs—a process that itself benefits from recent innovation.”
2. Representation:
The Purple Walls article examines how we support new and diverse talent in the financial profession broadly–and right here at The College. You’ll see powerful demographics and equally powerful programs, with testimonials about what’s working today.
Sneak peek: Ultimately, The American College of Financial Services is seeking to shape the financial services industry into a more representative sample of the Americans served by the industry. Through scholarships, events, programs, and thought leadership, we are undertaking a mission that will benefit not only the individuals and companies that make up the financial services industry, but current and prospective clients as well.
3. Retirement Planning:
The Reimagining Retirement Planning article features The College’s latest thought leadership on a topic of growing importance to your clients. Find out how we’re helping financial professionals reach consumers with robust applied retirement planning knowledge as the Baby Boomer retirement wave rises.
“In survey after survey over the past two years, our thought leaders have consistently found financial professionals, advisors, and even the general public want more retirement planning knowledge to prepare for the challenges and changing landscapes of markets, money, and regulations.”
(Read more about our strategic priorities.)
Measurable, Memorable, and Motivating
We’ve focused on what is measurable, letting the data tell the story wherever possible. And you’ll also find other moving and memorable stories, including a tribute to a dedicated alumnus – a professional whose life reflected a commitment to financial services and whose dedication to The College made a difference for generations to follow. We hope you’ll find all of the articles motivating as you think about your relationship with The College in the years to come.
And be sure to check out the listings of all our volunteers and look for yourself, your friends, and your colleagues among the photos from past events!
On behalf of our faculty and professional staff, I invite you to get your copy, share it with your network, and expand your opportunities.
Please enjoy the report—with our thanks for your support!
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