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IRA & Retirement Planning Topics

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Roth IRA

Navigating Qualified Charitable Distributions in 5 Easy Steps

Using a QCD may significantly increase your tax savings under the new higher standard deduction. However, not everyone is eligible to do a QCD, and if you are, there are certain rules that apply.

What is a qualified charitable distribution (QCD)?

A QCD is a distribution from an IRA that goes directly to a qualifying charity and is not included in the taxable income of the IRA owner. A QCD cannot be made from an employer plan. A QCD can be up to $100,000 a year, per individual. Under the new tax law, QCDs are more valuable than ever.

1. Either an IRA owner or a beneficiary can do a QCD. The individual must be at least age70 ½ at the time of the transaction. Reaching age 70½ later in the year is not enough. Bothspouses can do a QCD when each spouse does the QCD from their own IRA.

2. A QCD can be made from an IRA, an inactive SEP or SIMPLE IRA, or a Roth IRA. Only pre-tax amounts can be used for a QCD, which makes the use of Roth funds veryunlikely. The QCD must be a direct transfer to a qualifying charity. A check payable tothe charity but sent to the IRA owner will qualify as a QCD, as will a check written from a“checkbook IRA” to a qualifying charity. If an IRA owner receives a check payable to themfrom their IRA and then later gives those funds to charity, that is not considered a QCD.

3. A charity must be a qualifying charity. It cannot be a donor-advised fund or a privatefoundation. A gift to a charitable gift annuity will also not qualify. A QCD to a charity where theIRA owner has an outstanding pledge will qualify and will not create a prohibited transaction.The QCD must satisfy all charitable deduction rules. If a distribution to a charity is more than$100,000, the amount over $100,000 is taxable to the IRA owner and is deductible on theowner’s income tax return. The excess amount cannot be carried over to a future tax year.

4. A QCD can satisfy a required minimum distribution (RMD). It is not limited to theamount of the RMD, but is capped at $100,000 a year. If an RMD is more than $100,000, anyamounts in excess of the QCD are taxable to the IRA owner.

5. The IRA custodian has no special tax reporting for a QCD. The QCD will be reportedon Form 1099-R as a regular distribution. The IRA owner will include the QCD amount on line15a of Form 1040. On line 15b, they will exclude the amount of the QCD and put the lettersQCD on that line. The amount of the QCD is thus excluded from the owner’s taxable income.The IRA owner also cannot take a charitable deduction for the QCD amount.

For more information on QCDs and other key areas of retirement planning, click here to contact the office nearest you.

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Choosing the Right Financial Advisor in 5 Easy Steps

Preparing for retirement can be overwhelming, and between tax, estate, insurance, and investment planning, some important aspects of your financial plan can be easily overlooked if you’re not working with a competent professional. A qualified financial advisor can help you ensure that all items are being considered, but not all advisors are created equal. So how do you decide who to work with?

With endless options available, choosing a financial advisor can be difficult. However, there are certain qualities to look for to help you narrow down your choices and make sure you find a qualified advisor that best fits your needs.

Why do you need a financial advisor? Today’s financial landscape is as complicated as ever. A good financial advisor can help you navigate this complexity so that you can make educated, informed decisions on what is best for you and your family. 

1. Ask for references. Ask your CPA or estate planning attorney. In many cases, they already have a working relationship with a financial advisor. You should also consider asking friends and family members for a recommendation if they are in a similar stage of life and financial situation. 

2. Don’t overemphasize credentials. It seems as though there are many credentials available to financial advisors. Some credentials require significant levels of education, passing scores on exams and adherence to strict codes of professional conduct. Many credentials, however, can be earned with virtually no effort or education at all. The bottom line is that the decision of what financial advisor to hire should be made based on more than just the letters after their name. 

3. Find a specialist. The term “Financial Advisor” is highly generic and can be used to describe many different types of professionals in the financial services field. When shopping around, find an advisor who specializes in your area of concern. If you had a heart problem, would you rather see your family doctor or a cardiologist? The same principle should apply to your financial advisor. 

4. Ask about education/training. Most financial advisors routinely participate in what are called “advanced training” classes. Many times these classes are heavy on sales training and light on “real” education. If you really want to know what your advisor has studied, ask to see the manual from the last educational conference he or she attended. If it has more sales information than technical information... Beware!

5. Don’t be afraid to get a second opinion. Your IRA, 401(k) or other retirement account may be the largest single asset you own. If you’re not sure about the advice you’ve been given, don’t be afraid to get a second opinion. If an advisor tells you that there’s no need for one, they’re probably not confident in the information and recommendations they provided to you in the first place. 

Questions? Click here to contact the office nearest you.

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Avoiding Charitable IRA Beneficiary Mistakes in 5 Easy Steps

Can IRAs be used to benefit a charity?

IRAs can be a great source of funds to provide a benefit for a favorite charity, but using these funds can create a number of traps that must be avoided in order to maximize benefits to both the charity and other IRA beneficiaries.

Are you considering donating your retirement assets to a charity? Naming a non-profit organization as an IRA beneficiary may be something you’ve yet to consider, but doing so can benefit both you and your charity, as neither of you will pay income tax on the account. However, using a retirement account for charitable gifting can also create a number of traps for both the charity and other IRA beneficiaries.

From determining how to properly name your charity as an IRA beneficiary to separating accounts for each intended heir, there are certain steps that should be taken when naming a charitable beneficiary.

Here's how you can avoid charitable IRA beneficiary mistakes in five steps:

#1 - Name the charity directly on your beneficiary form.  The money will go directly to the charity, avoiding both the time and expense of probate.  Additionally, the distribution to the charity will not be considered income to the estate of the deceased IRA owner.

#2 - Set up separate accounts.  Consider transferring the portion you intend to leave to charity into a separate IRA account.  If other beneficiaries inherit the same IRA as a charity and the charity’s portion is not “cashed out” or split within the IRS prescribed time frames, the stretch IRA for the living beneficiaries will be lost.

#3 - Reverse your bequests.  If you have made provisions for certain charities under your will and also have retirement plans, an effective tax strategy would be to reverse the bequests with non-retirement assets.  This way, the charity receives the same amount that you were going to leave them in your will, but your heirs will end up with more, because the money they will inherit will not be subject to income tax, as the retirement plan would be.

#4 - Don’t convert assets you plan to leave to a charity.  Many charitable organizations and religious groups are structured tax-exempt organizations.  When an IRA is left to one of these charities, the charity does not have to pay income tax on the distribution as other beneficiaries would.  As a result, if you intend to leave your IRA to charity, converting it to a Roth IRA is generally not a wise move.  Why pay income tax on the conversion when the money will be going to the charity tax free anyway?

#5 - Beware of naming a charity as a trust beneficiary.  A charity is known as a “non-designated beneficiary,” because it does not have a life expectancy.  In general, trusts are also non-designated beneficiaries.  Certain trusts, known as see-through (or look-through) trusts allow for post-death distributions to be stretched based on the trust beneficiary with the shortest remaining life expectancy.  Since a charity has no life expectancy, if it is named as a beneficiary of a trust that is also inheriting an IRA, it can eliminate the stretch for the remaining trust beneficiaries.

Interested in learning more about IRA planning strategies? Make sure to contact us so that we can share more with you. Click here to contact our office nearest you.

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