The Social Security Administration (SSA) says Social Security recipients will receive a 5.9 percent cost-of-living adjustment (COLA) for 2022, the largest increase in four decades. This adjustment will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Additionally, increased payments to more than 8 million Supplemental Security Income (SSI) beneficiaries will begin on December 31, 2021.¹

Biggest COLA Increase in Decades?

While many predicted a bump of as much as 6.1% given recent movement in the Consumer Price Index (CPI), the announced 5.9% increase is still substantial. Some fear that rising consumer prices may dilute the impact of the increase with inflation currently running at more than 5 percent. While this remains to be seen, Social Security beneficiaries will no doubt welcome the largest adjustment in many years.¹

How You Will Be Notified.

According to the Social Security Administration, Social Security and SSI beneficiaries are usually notified about their new benefit amount by mail starting in early December. However, if you’ve set up your SSA online account, you will also be able to view your COLA notice online through your “My Social Security” account.¹

Next Steps?

If this increase surprises or concerns you, it's always a good idea to seek guidance from your financial professional about changes to any of your sources of retirement income. I welcome a chance to talk with you about this.

Jeff Hamm may be reached at 228-474-3427.

Learn more about NCU Wealth Management.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC , a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

Citations

1. SSA.gov, October 13, 2021

New inherited IRA rules took effect on January 1, 2020. The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law on that day, altering the regulations on inherited Individual Retirement Account (IRA) distributions.

The big change: the introduction of the 10-year rule for beneficiaries. Most people who inherit an IRA now have to empty that IRA of assets within ten years of the original owner's death. You can do this as you wish; you can withdraw the whole IRA balance at once, or take incremental distributions on the way to meeting the 10-year deadline.¹

Remember that tax rules constantly change. There is no guarantee that the tax treatment of Roth and Traditional IRAs will remain what it is now. This article is for informational purposes only. If you have inherited or expect to inherit a traditional or Roth IRA, be sure to consult a financial professional for real-world advice.

Are there exceptions to this rule? Yes. If the deceased IRA owner was your spouse, you can treat the inherited IRA like an IRA of your own. If it is a traditional IRA, you generally must take required minimum distributions (RMDs) from it once you reach age 72. The Internal Revenue Service (IRS) taxes those distributions as regular income, and if you take any distributions before age 59½, they may be subject to a 10% federal income tax penalty. If it is a Roth IRA, you aren't required to take RMDs. (You may continue to contribute to a Traditional IRA past age 72 as long as you meet the earned-income requirement.)¹

Certain non-spousal IRA beneficiaries still have the chance to "stretch" inherited IRA distributions over their remaining lifetimes, using Internal Revenue Service formulas (a choice available to most IRA beneficiaries before 2020). You may choose this option if you are less than ten years younger than the original IRA owner. You can also elect to do this if you meet the SECURE Act's definition of a "disabled" or "chronically ill" individual (you have a life-altering physical or mental impairment or require extended care).^1,2

Lastly, if a child inherits an IRA, they can take distributions based on the child's life expectancy until the age of 18, at which point the aforementioned 10-year rule applies.¹

If you are a Roth IRA beneficiary, be aware of the 5-year rule pertaining to Roth IRAs. If you inherit a Roth IRA that is less than five years old at the time of the original owner's death, any earnings taken from it will count as taxable income. If the Roth IRA is more than five years old, you can take tax-free distributions from the earnings. Assets representing the original owner's Roth IRA contributions can become tax-free distributions regardless of when the original owner opened the Roth IRA¹

What's the big takeaway from all this? Suppose you are relatively young and anticipate a large IRA inheritance, and that big IRA is a traditional IRA. In that case, you can anticipate greater income taxes during the 10-year window when you take those inherited IRA distributions.

By the way, the new rules do not apply to inherited IRAs whose initial owners died prior to 2020. If you are a beneficiary of such an IRA, then you may still attempt to "stretch" the inherited IRA assets according to IRS life expectancy formulas and take RMDs as required by the old rules.³

Jeff Hamm may be reached at 228-474-3427.

Learn more about NCU Wealth Management.

Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations

1. NerdWallet, November 25, 2020
2. FedWeek, March 3, 2020
3. Forbes, October 28, 2020