Doing Well By Doing Good

by  /  News, Tax Planning

If you have an interest in supporting your favorite charity, today we consider a charitable, yet tax efficient, use of your IRA assets.

  • Whether cash flow is needed or not, every IRA owner 70 ½ and older must take required minimum distributions (“RMDs”) from their IRAs each year, based on your life expectancy and the January 1 value of all of your IRAs. This is not due to the IRS’s concern for our having adequate retirement cash flows to ensure a satisfying lifestyle, but rather a desire to collect current ordinary income tax from IRA distributions, rather than allowing the tax deferral to continue indefinitely.
  • If you are fortunate enough not to need all of your RMDs to maintain your lifestyle, you have the opportunity to make a direct “Qualified Charitable Distribution (“QCD”)” from your IRA to any public charity of up to $100,000 each year, without including such transfer in your adjusted gross income (“AGI”).
  • QCDs may only be made unconditionally to public charities, and not “quid pro quo” donations (i.e., for better basketball tickets). The charity must be public, not a private foundation, donor-advised fund or supporting organization.
  • QCDs may be made from IRAs or Roth IRAs, but not from SEP, SIMPLE or inherited IRAs. As distributions from Roth IRAs are income tax-free, they are likely not the best alternative.

A QCD will satisfy the donor’s RMD, without increasing AGI, so less income tax will be due and good will be done.

Having a higher AGI due to an IRA distribution can be detrimental to you for reasons unrelated to your IRA. Many expensive results derive from higher AGIs:

  • Higher income taxes on social security.
  • Limitations on itemized deductions and personal exemptions due to “haircuts” of such items for those with higher AGIs.
  • Limitations on annual charitable deductions (e.g., limited to 50% of AGI) could restrict deductions for your current-year contributions (although currently non-deductible contributions can be carried forward and deducted for a period of up to five years).
  • Medicare insurance premiums and Medicare surcharges increase.

Because QCDs do not increase AGI, they do not exacerbate these adverse results.

The QCD is not taxable income, so it is not deductible.

  • QCDs allow the approximately two-thirds of taxpayers who take the standard deduction, without deducting charitable gifts, to now get the equivalent of a deduction.
  • Not being taxed on income is the equivalent of a tax deduction.

Making a QCD is painless:

  • Simply contact the charity to determine the proper payee name for the check.
  • Then instruct your IRA custodian or trustee to make a transfer from the IRA directly to the charity. Most custodians already have forms and procedures in place to make this transfer.
  • The check cannot be made payable to you, it must be to the charity. It cannot flow through a non-IRA account of yours as an intermediate step.
  • The check must go directly to the charity, which must then issue you a letter of acknowledgement.

Your assets flow in one of three directions during life and at death:

  1. Your family, friends and designees, or
  2. Charities of your choice, or
  3. The Government.

Why not choose who gets your assets, rather than defaulting them to the Government?

The QCD is a user-friendly and effective way to further the good works of your favorite charities. You really can do good while doing well on your tax planning!


Remember, it’s not what you make that matters…it’s what you keep!

The general information herein is not intended to be, nor should it be treated as tax, legal, or accounting advice, nor can it be used for the purposes of avoiding tax penalties.  Please seek advice from an independent tax advisor before acting on any information presented.


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Retirement Planning Focus X

by  /  News, Retirement Planning

Today we discuss five questions to ask yourself five years prior to retiring.

How Long Will You Live?

  • This is my default response to the question “Do I Have Enough Assets to Retire?”
  • Mortality tables indicate that a male age 65 has a mortality age of 84, meaning that half of all men who are 65 today will die before age 84 and the other half will still be alive, needing assets to live.
  • Also, while a male age 65 has a 50% chance of living to 84 and a female age 65 has the same 50% chance of living to 86, as a couple, they have a 45% chance of one of them living to age 90.
  • My father is going strong at 95, which sounds like a good number to plan on. Retirement assets should last at least 30 years.

Where Will You Live?

  • Different zip codes can have very different costs of living.
  • If you live close to family members, it could lower travel expenses, but raise other expenses.
  • Some areas may offer more opportunities for part-time work or business activities.
  • Lifestyle issues such as climate, cultural and recreational opportunities and access to effective medical care should all be considered.

What Will You Do?

  • Will you spend your time generating expenses or income?
  • Extensive first class travel, Broadway shows and gourmet dining can be expensive over time.
  • Work during retirement saves expenses on travel and entertainment, while generating income.
  • Volunteer work can be rewarding, emotionally, psychologically and (perhaps) financially (income tax deductions).
  • Starting a business during retirement should be quite rewarding on several levels and eventually be profitable. Resources will be needed for start-up expenses and funding losses from early operations. Early cash drains hopefully result in later cash gains.

 How “Large” Will You Live?

  • Whether you are traveling, working or hanging out at home, you can do so in a “large” or in a “simple” manner. Nothing is wrong with “living large,” you just must budget for it.
  • Some retirees scale back in retirement and live the simple life. Pursuits might include gardening, taking long walks and reading great books. You can do a lot with little if you enjoy living simply.
  • Other retirees feel they have been imprisoned in an office for 30 years and are entitled to live the good life. They want to travel, eat out often and well, explore expensive hobbies and “live the dream.” This can require great resources, but can be rewarding if you can afford it.

How Lucky Will You Be?

  • Your future health is perhaps the largest unknown variable.
    • While our life expectancies continue to increase, no guarantees can be made as to what the quality of life for these extended years will be.
    • Medicare and medigap supplemental insurance will handle the bulk of the major medical expenses, but not long term assisted living or nursing home expenses.
    • The healthier you are, the more likely you are to need long-term care for the frailties that come with extended lifespan. Long term care insurance is a good hedge against these expenses.
    • The recent sharp spikes in medical expenses beg the question of what they might be in 20 years. Medical expenses are likely to become an ever higher percentage of retirement expenses. Chronic issues, such as Alzheimer’s, can be devastating to a budget.
  • Your Family could have significant financial needs. Economic risk and divorce risk can be hard on your children and grandchildren.
  • Economic disasters, such as the Great Recession of 2008, can wreak havoc on your retirement assets. Many retirees returned to work after their retirement assets were ravished by a 50% drop in the stock market.
  • Physical disasters, such as floods, tornadoes or hurricanes occur too often, sometimes with ruinous effect. Complete insurance coverage is a necessity.

None of us knows what lays in wait for us during retirement. It is prudent, however, to ponder these issues far enough in advance of your retirement date, to enable you to make appropriate changes in your plans or delay your retirement date until adequate resources are available.


Remember, it’s not what you make that matters…it’s what you keep!

The general information herein is not intended to be, nor should it be treated as tax, legal, or accounting advice, nor can it be used for the purposes of avoiding tax penalties.  Please seek advice from an independent tax advisor before acting on any information presented.

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