Bob’s Journal for 10/26

6 IRA Actions to Consider Before Dec. 31

It is time to assess key IRA actions and be sure to take the ones that are appropriate for you before the end of the year. Actions must be completed before Dec. 31 to reap their benefits.

If you wait until December to act and the individual retirement account (IRA) custodian, or your bank or broker, is backed up with other requests, you could be out of luck. Of course, complete any contributions you’ve planned for the year.

There no longer is an age limit for contributions to either traditional or Roth IRAs. But you must have earned income from a job or self-employment to make a contribution.

When you’re planning to convert all or part of a traditional IRA to a Roth IRA, the transaction must be completed before Dec. 31. Directing the custodian to make the conversion isn’t sufficient. The money or assets must be moved from the traditional IRA to the Roth version before Jan. 1.

Check that you’ve taken any required minimum distributions (RMDs) for your traditional IRA and 401(k). As with the conversion, the transaction must be completed by the end of Dec. 31.

If this is your first RMD (that means you turned 73 in 2023), you have until April 1, 2024, to take the distribution. But you’ll also have to take 2024’s RMD next year. That means if you wait until after Dec. 31 to take the first RMD, you’ll take and be taxed on two RMDs in 2024.

Beneficiaries of inherited IRAs (whether traditional or Roth) might have to take RMDs by the end of 2023 or they might want to take some money out in 2023 so they aren’t bunching large RMDs in future years. But beneficiaries who are subject to the 10-year rule under the SECURE Act should know that the IRS suspended their 2023 RMD requirements, because it hasn’t issued final regulations yet.

See the September 2023 and May 2022 issues of Retirement Watch for details about RMDs for inherited IRAs.

There’s a little-known rule for the RMD of a recently deceased person. An RMD must be taken for the year a person died. If the person didn’t take the RMD before passing away, then the principal beneficiary must take the year-of-death RMD before the end of the year and be taxed on it.

Make charitable contributions through qualified charitable distributions (QCDs) from your traditional IRA if you’re over age 70½. The QCD counts as part of your RMD for the year, but it isn’t included in your gross income.

The QCD is a way to satisfy the RMD requirement tax-free and is a great strategy for IRA owners who make charitable contributions. For details on QCDs, see the April 2022 and June 2023 issues of Retirement Watch.

Beware of a Hidden Source of Retirement Inflation

A reason many retirees believe they have less money to spend is sitting in their garages.

Costs associated with owning vehicles were fairly stable for many years. The price of gasoline fluctuated within a range that was comfortable for most people. Maintenance and repairs also were fairly steady and predictable. The same goes for vehicle insurance.

All that changed with the post-pandemic inflation.

You know how the cost of gasoline changed in recent years, so I won’t spend time on it.

Thanks primarily to supply chain issues and general inflation, the cost of new vehicles has become a burden to many people. Higher interest rates increased the burden. Those same factors pushed the cost of repairs, both labor and parts, much higher.

One burden of owning a vehicle that snuck up on a lot of people over the last few years is vehicle insurance premiums.

For some time now, the monthly Consumer Price Index reports revealed that vehicle insurance premiums increased by double-digit percentages over the previous 12 months.

In many states, insurers have to file requests for premium increases, and those filings indicate more increases are on the way, according to The Wall Street Journal. In California, many requests are for increases of 20% and more.

Several factors are behind the premium increases.

Insurers face the same cost increases for parts and labor that vehicle owners do.

Plus, used car prices increased. Higher prices for used cars require insurers to pay more when a damaged vehicle is determined to be totaled.

Weather also affects the insurers, because more vehicles were damaged in storms in recent years.

Driving also is more dangerous, according to the Insurance Information Institute. Fatalities in 2021 were at a 16-year high, and fatal accidents still seem to be increasing. Reckless driving and other violations that lead to damage claims also are on the rise.

Insurers clearly underestimated the post-pandemic inflation when setting premiums the last few years. Premiums are likely to continue increasing until they catch up with costs.

Premiums could continue to increase faster than the general inflation rate. Many of the factors that increase the cost of owning or insuring vehicles are independent of the Consumer Price Index and monetary policy. Until the factors that caused the recent premium increases abate, expect to see the cost of owning and insuring a vehicle to increase faster than before the pandemic.

Important Retirement Plan Changes for 2024

The SECURE Act 2.0 changed many laws about IRAs and other qualified retirement plans. The changes are phased in over several years.

Here are some key changes that take effect in 2024.

For the first time, excess funds in a 529 education savings plan can be rolled over to a Roth IRA. There are limits to this rollover, but it can be useful for those who find that all the money in a 529 account isn’t likely to be used for education as originally intended. See the August 2023 issue of Retirement Watch for details.

Required minimum distributions (RMD) no longer apply to owners of Roth 401(k) accounts. The RMDs had been a major difference between Roth 401(k)s and Roth IRAs and discouraged some people from using Roth 401(k)s.

Higher-income employees (those earning more than $145,000) who are ages 50 and older will have any catch-up contributions they make to 401(k) plans treated as Roth-type contributions. That rule applies whether the contributions are to a traditional 401(k) or Roth 401(k). The catch-up contributions will be included in gross income and subject to income and payroll taxes.

The catch-up contribution limit for IRAs, available to those ages 50 and older, will be indexed for inflation. The limit has been fixed at $1,000 for some time.

More types of distributions can be taken penalty-free before age 59½. The new penalty-free early distributions that take effect in 2024 are for domestic-abuse victims and for “emergencies” as defined in the tax code and any guidance the IRS issues.

Employers also can add more provisions to retirement plans. They can create emergency savings accounts for employees who choose to participate and fund an account. Employers also can offer simple, low-cost starter 401(k)s.

The employer contribution limit for SIMPLE plans increases. Employers also might receive a tax credit for all or part of the cost of establishing a new retirement plan for employees.

The Data

Economic growth improved a little in the first half of October, according to the PMI index flashes.

The PMI Services Index was 50.9 in the mid-month flash, compared to 50.1 at the end of September. The PMI Manufacturing Index was 50 in the mid-month flash, up from 49.8 at the end of September.

The result was the PMI Composite Index mid-October flash was 51, compared to 50.2 at the end of September.

The Leading Economic Indicators Index from The Conference Board declined by another 0.7% in September after sliding 0.5% in August. The index has slipped every month since April 2022.

Over the past six months, the index is down 3.4%. That’s better than the 4.6% decline for the previous six-month period. The Conference Board reported that the index still points towards a shallow recession in the first half of 2024.

Existing home sales declined by 2% in September after falling 0.7% in August. September was the fourth consecutive month that sales declined.

The number of existing homes sold in September was the lowest for any month since October 2010.

New single-family homes sales increased by 12.3% in September after declining 8.2% in August. That’s the biggest monthly increase since August 2022. The number of new homes sold in September was the most since February 2022.

The median sale price of a new single-family home in September was $418,800, down from $477,700 12 months earlier. The average sale price of a home in September was $503,900, compared to $530,100 12 months earlier.

The Philadelphia Fed Manufacturing Index improved to negative 9 in October from negative 13.5 in September.

The Richmond Fed Manufacturing Index for October was 3, down from 5 in September.

New unemployment claims declined by 13,000 to 198,000 in the latest week. That’s the lowest level since January.

Continuing claims, which lag a week behind new claims, increased to 1.734 million from 1.705 million.

The Markets

The S&P 500 lost 2.84% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 2.46%. The Russell 2000 dropped 4.85%. The All-Country World Index (excluding U.S. stocks) declined 2.70%. Emerging market equities retreated 2.13%.

Long-term treasuries rose 0.12% for the week. Investment-grade bonds increased 0.12%. Treasury Inflation-Protected Securities (TIPS) added 0.11%. High-yield bonds gained 0.28%.

On the currency front, the U.S. dollar gained 0.17%.

Energy-based commodities fell 1.63%. Broader-based commodities lost 0.17%. Gold rose 2.61%.

Bob’s News & Updates

My latest book is “Retirement Watch: The Essential Guide to Retiring in the 2020s.” Learn more and order by clicking here and here. You can be among the first to write a review.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.