Client Year End Planning For Grocery Outlet Holding Employees

Clarification on Inherited IRA Distributions

As a Grocery Outlet Holding employee it is imperative to understand IRA distributions as to better plan your finances. The IRS recently issued Notice 2022-53 providing guidance that it intends to issue final regulations relating to RMD rules for certain inherited IRAs. The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) made changes to distribution rules for IRA beneficiaries. This is especially important for those employed in Grocery Outlet Holding companies looking to retire with these benefits. The SECURE Act maintained the ability to stretch annual distributions over the remaining life expectancy for eligible designated beneficiaries (spouses, individuals not more than ten years younger than the IRA owner, chronically ill or disabled persons and minor children) but implemented a new 10-year distribution rule for most other beneficiary types (adult children, siblings, certain trusts, etc.). This new set of rules applies to those in Grocery Outlet Holding companies who are beneficiaries inheriting IRAs in 2020 and thereafter. For example, an IRA owner passed away in 2020 and designated her adult daughter as beneficiary. Under the new rules, the daughter would have to empty the inherited IRA within 10 years of the anniversary of the original IRA owner’s year of death; in this case, by December 31, 2030. At the time, the IRS indicated that annual distributions would not be mandatory as long as the account was fully emptied by the end of the tenth year. Consequently, many IRA beneficiaries subject to the 10-year rule did not take RMDs in 2021 and may not have taken any distribution so far in 2022 (RMDs were waived for everyone in 2020 due to the CARES Act). For Grocery Outlet Holding employees, it is important to account for this information when planning for the end of the year as to not be surprised by changes in regulation and benefits themselves.

Grocery Outlet Holding employees may benefit from understanding the IRS proposed regulations on inherited IRAs. The IRS hinted at mandating annual RMDs in years 1 through 9 with the balance being distributed in year 10 if the IRA owner died on or after his/her required beginning date. For those in Grocery Outlet Holding who expect to inherit an IRA, it is imperative to consider this information to construct a solid financial plan. The required beginning date is April 1st of the year following the year the IRA owner turns 72 (or age 70.5 if the IRA owner turned 70.5 prior to 2020) and marks the deadline for taking the first RMD. IRS Notice 2022-53 states that RMDs for certain inherited IRAs will not begin prior to 2023. Essentially, those in Grocery Outlet Holding companies who are IRA beneficiaries do not need to take an RMD in 2021 or 2022 and will not be subject to any penalties for failure to make a distribution.

Grocery Outlet Holding employees can request a refund for any penalties already paid related to what was thought to be a missed distribution. The IRS will issue final regulations on this matter which will further clarify the rules regarding inherited IRAs. You should consult a tax advisor with any questions.

Year-End Planning Checklist

Review Your 2022 Budget

Review and reassess your goals and priorities as a Grocery Outlet Holding employee
Revisit your 2022 budget and prepare a budget for 2023

Be sure to include savings for your retirement and other goals

Calculate your net worth and as a Grocery Outlet Holding employee and see how it compares to your financial plan
Evaluate whether you have sufficient cash in your emergency fund (3-6 months’ living expenses)

Portfolio Review

Review your asset allocation and compare it to your targets
Review your capital gain situation for the year

Consider tax loss harvesting if you are a Grocery Outlet Holding employee in a high tax bracket
Consider realizing gains if you are in the 0% Long Term Capital Gains tax bracket

Retirement Savings

If you are a Grocery Outlet Holding employee over 72, satisfy your RMDs by December 31, 2022

Consider using Qualified Charitable Distributions for your charitable donations

Review your 2022 retirement contributions for any IRA or 401(k) accounts

Make sure you are deferring enough to employer plans to receive the full amount of any employer match
Contribute to a Roth IRA if you have earned income and your MAGI is below the income restrictions:

2022 MAGI Limits	Range Starts	Range Ends
Single	$129,000	$144,000
Married filing jointly	$204,000	$214,000

Increase your Roth retirement account holdings without increasing your current income tax

As a Grocery Outlet Holding employee, If your employer’s retirement plan allows after-tax contributions and in-plan conversions, take advantage of this strategy
If you have no pre-tax IRA accounts, do a backdoor Roth contribution

Make your 2023 employer benefit elections (see below)

If you will be 50 or over during the year, then you are eligible to contribute additional “catch-up” amounts

If you are a retired Grocery Outlet Holding employee and are not yet taking RMDs, consider completing some Roth conversions (filling up your current tax or IRMAA bracket)
Review the beneficiaries for all your accounts

Gifting

As a Grocery Outlet Holding employee, you should take advantage of the $16,000 per donee annual gift exclusion in 2022

Retirement Plan Contribution Limits

Retirement Plans	2021	2022
401(k), 403(b)-402(g)(1) – Maximum employee elective deferral	$20,500	$22,500
Defined Contribution Plan Total Limit (Employee + Employer)	$61,000	$66,000
Solo 401k Maximum Contribution (Employee + Employer)*	$61,000	$66,000
Catch-up Contribution for the plans above (age 50 or older, above annual limit)	$6,500	$7,500
IRA Contribution Limit	$6,000	$6,500
IRA Catch-up Contribution (age 50 or older, above annual limit)	$1,000	$1,000
Roth IRA Contribution Limit	$6,000	$6,500
Roth IRA Catch-up Contribution (age 50 or older, above annual limit)	$1,000	$1,000
SEP IRA Maximum Contribution	$61,000	$66,000
SEP Catch-up Contribution	NOT permitted	NOT permitted
SIMPLE Maximum Contributions	$14,000	$15,500
SIMPLE Catch-up Contribution (age 50 or older, above annual limit)	$3,000	$3,500

Financial Planning During a Bear Market

“Being Patient” is not the same as “Do Nothing.”

Grocery Outlet Holding employees may benefit from recognizing how many of our planning strategies are particularly effective during a down market. Here is how these actions are particularly effective in these conditions:

Roth Conversions
- Example – converting 50 shares of AAPL at $140 is a $7,000 conversion. When AAPL was at $190, $7,000 conversion would have only allowed for 36 shares of AAPL to be moved into the Roth IRA account.

Converting IRA stock to a Roth IRA when the market is down can allow for more shares to be transferred and growth for the future.

Tax Loss Harvesting (for Grocery Outlet Holding employees who are not in the 0% Long Term Capital Gains tax bracket)
- Example – sell a position in an ETF to realize a $2,500 loss and reinvest in a similar ETF to keep a similar market exposure.

Realize positions at a loss as frequently as possible. Losses can be carried forward indefinitely to offset capital gains and $3,000 of ordinary income.

Maximize & Reallocate 401(k) Contributions
- Example – increase contributions and consider allocating new dollars to stocks that have more growth potential for the long term.

Invest more while the market is down for long-term growth

Review Budget and Personal Balance Sheet as a Grocery Outlet Holding employee
- Example – automate savings and investments into a brokerage account and reduce discretionary spending where possible.

Reducing unnecessary spending can free up cash to save/invest while markets are discounted.
It is prudent to ensure financial stability in case economic conditions worsen

Review your Financial Plan
- Example – contact your advisor to update asset values based on lower valuations and stress test your cash flow needs in retirement on a lower asset base.