As 2023 begins, advisors are waiting for the policy and tax changes impacting their high-net-worth clients. Those include changes stemming from the passage of Secure 2.0 Act. Read on for the 2023 policy and tax changes that advisors expect to affect high-net-worth clients.

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The Secure Act 2.0

The Secure 2.0 Act passed Congress in December, adding changes for taxpayers, including high-net-worth clients.

For instance, high-net-worth individuals profit from the age update for required minimum distributions (RMDs). The age requirement for RMDs has been raised to 73 and can jump to age 75 in 2033.

“On this scenario, it allows the client more time to convert tax-deferred assets to tax-free assets, resembling a Roth IRA,” says Kevin Chancellor, financial advisor and CEO of Black Lab Financial Services.

“If the client just isn’t drawing Social Security yet, they may draw down their tax-deferred assets as income prior to their RMD age, in order that they’ll delay Social Security,” Chancellor says. “This strategy can reduce taxation on their profit in addition to potential increases of their Medicare costs.”

One other Secure 2.0 Act change for high-net-worth individuals to benefit from is that this: The Secure Act 2.0 allows penalty-free rollovers from a 529 plan to Roth IRAs. But there’s a cap on how much may be rolled over. The lifetime rollover limit from a 529 plan to an IRA is $35,000 and annual rollovers shall be in step with the annual IRA contribution limit.

Rising Interest Rates’ Impact on Charitable Remainder Trusts

In an environment where rates of interest are rising, advisors are eyeing charitable remainder trusts (CRTs) and their potential advantages for high-net-worth clients.

These trusts let clients donate assets to charity and draw annual income for all times or for a set time, in keeping with the IRS.

“With a charitable remainder trust, the upper rates of interest increase, the upper the payout rate for the variable or fixed annuity retained being calculated,” says Richard Austin, certified investment management analyst, certified exit planning advisor and executive director at Integrated Partners. “CRTs are a fantastic planning vehicle to defer taxes, create charitable deductions and phase in the belief of gain over a time frame.”

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The 2025 Sunsetting of the Tax Cuts and Jobs Act

While the tip of the Tax Cuts and Jobs Act isn’t set to happen until December 2025, advisors are eyeing savvy tax moves high-net-worth individuals should make while there’s still time.

“High-net-worth clients should have a look at leveraging current lifetime gift exemptions, currently at $12.92 million per individual for 2023, before the Tax Cuts and Jobs Act of 2017 expires year-end 2025,” says Andy Watts, certified financial planner and vp of investment solutions at Avantax Wealth Management.

Insurance strategies may provide opportunities for high-net-worth clients. “For individuals who are already funding their employer-sponsored plans and IRAs and are high-earning younger clients, overfunding life insurance can construct money value on a tax-deferred basis,” Watts says.

Bottom Line

Advisors and high-net-worth clients won’t cope with an overhaul of taxes in 2023. But there are opportunities for high-income individuals to be proactive in light of rising rates, potential tax increases and policy changes from Capitol Hill.

Suggestions for Growing Your Financial Advisory Business

• Allow us to be your organic growth partner. In the event you wish to grow your financial advisory business, try SmartAsset’s SmartAdvisor platform. We match certified financial advisors with right-fit clients across the U.S.

• Expand your radius. SmartAsset’s recent survey shows that many advisors expect to proceed meeting with clients remotely following COVID-19. Consider broadening your search and dealing with investors who’re more comfortable with holding virtual meetings or spacing out in-person meetings.

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