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Policy and Tax Changes Impacting High-Net-Worth Clients in 2023


As 2023 begins, advisors are looking ahead to 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 impact 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 example, high-net-worth individuals benefit from the age update for required minimum distributions (RMDs). The age requirement for RMDs has been raised to 73 and will jump to age 75 in 2033.

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

“If the client is not drawing Social Security yet, they can also draw down their tax-deferred assets as income prior to their RMD age, so that they can delay Social Security,” Chancellor says. “This strategy can reduce taxation on their benefit as well as potential increases in their Medicare costs.”

Another Secure 2.0 Act change for high-net-worth individuals to take advantage of is this: The Secure Act 2.0 allows penalty-free rollovers from a 529 plan to Roth IRAs. But there is a cap on how much can be rolled over. The lifetime rollover limit from a 529 plan to an IRA is $35,000 and annual rollovers will be in line with the annual IRA contribution limit.

Rising Interest Rates’ Impact on Charitable Remainder Trusts

SmartAsset: Policy and tax changes impacting high-net-worth clients in 2023

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

These trusts let clients donate assets to charity and draw annual income for life or for a set time, according to the IRS.

“With a charitable remainder trust, the higher interest rates increase, the higher 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 great planning vehicle to defer taxes, create charitable deductions and phase in the realization of gain over a period of time.”

The 2025 Sunsetting of the Tax Cuts and Jobs Act

While the end of the Tax Cuts and Jobs Act isn’t set to take place 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 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 vice president of investment solutions at Avantax Wealth Management.

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

Bottom Line

SmartAsset: Policy and tax changes impacting high-net-worth clients in 2023
Advisors and high-net-worth clients won’t deal 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.

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