Individual Retirement Account Planning – What Now?

Change, as annoying as it can be, is inevitable and so we must be proactive in dealing with it especially as it pertains to our retirement savings planning. For most investors, tax-deferred accounts, such as IRAs and 401(k)a are where the majority of their retirement assets are held.

In that regard, the changes in the tax laws that started with your 2018 return should be reexamined in relationship to your retirement savings efforts. Specifically, there are some strategies pertaining to IRAs that should be considered given these recent changes. Interestingly, there is also current legislation in the Senate that could affect pre-tax accounts in a big way but we will focus here on what we know today.

1. Deductibility of IRA fees

IRA advisory fees are no longer deductible on an itemized basis. Based on your personal tax situation you should seek your CPA’s help in optimizing the best place(s) from which to pay fees for particular types of accounts. Generally speaking, you could pay IRA fees from your pre-tax IRA. This would effectively provide a deduction since pre-tax funds are being used to pay the fee. You could also opt to pay all fees from non-taxable accounts but again, it depends on your situation as to whether this would be beneficial. You do not, however, want to pay any non-ira account fees from an IRA.

2. Roth Conversions

This can be substantial if you miss it. You can no longer reverse or re-characterize Roth conversions. Once a conversion is done, it’s done! Gone are the days of seeing your tax bill the following year and deciding to reverse the decision. This is not to say that Roth conversions are a bad idea. On the contrary, an effective Roth conversion strategy could be more attractive now than ever, due to low tax rates and larger standard deductions. There is a short window however to take advantage of these lower rates before they sunset. Future conversion strategies should be done based on your individual situation and the IRA accounts in question. Hurry, time is limited to optimize your strategy.

3. Qualified Charitable Distributions (QCD)

This one applies to those already over 70.5 years of age. For many individuals and households, charitable gifts will no longer be deductible because taking the larger standard deduction will be more advantageous than itemizing. However, you can still effectively get the deduction by not only taking the new, larger standard deduction but also making your charitable donation by way of QCD which is excluded from income. A QCD must be a direct transfer from the IRA to the charity, can be up to $100,000 per person and meet the RMD requirements for IRAs. The charity must also be an eligible entity (a qualified charity). The QCD does not increase Adjusted Gross Income for tax purposes like an IRA distribution does; therefore, charitable giving can be done without affecting Social Security benefits and Medicare premiums.

4. Required Minimum Distribution (RMD) Planning

It is very important to make sure that you are meeting your RMD obligation annually from your IRAs. Remember, there is a 50% penalty imposed for missing an RMD. That is substantial! RMD planning can apply to those IRA owners that are over 70.5 but could also apply to younger beneficiary IRA owners (and bene Roth IRA owners) depending on the situation. For those over 70.5, the QCD mentioned above is a good way to help meet those obligations. RMD’s for those who own multiple IRA accounts can be aggregated and pulled from one single account if desired and must be pulled by year-end unless it’s your first RMD year. First-year RMD’s can be deferred till April 1st of the following year but then must be taken in conjunction with the current year’s obligation thus doubling the RMD for that year.

Don’t wait till tax time next year to review your strategies and figure out what changes (if any) need to be made. There is no time
like the present to make adjustments and get prepared.

We can help coordinate and implement the items mentioned here with the rest of your overall retirement strategies. We are happy to help so just give us a call setup your no-obligation review today. We look forward to meeting you!

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