78 year old business owner

Submitted by Robert Wright on Wed, 2023-05-10 20:11

A business owner is having a great year.
He will be 78 in 2023 and 79 in 2024.

Is there any reason NOT to establish and contribute to a deductible IRA for CY 2023?

I recognize that an RMD will be required.

But if he’s in the 22% or 24% federal tax bracket, and he has to turn around and withdraw 4.74% as a 2024 RMD, he’s still ahead – tax wise.

Is this correct: If he currently has a zero TIRA balance (as of 5/10/2023) and he contributes $7,500 to a traditional IRA in June of 2023, his first RMD will be for 2024 based on the 12-31-2023 TIRA Value and the RMD factor for a 79 year old (21.1).



Submitted by Alan - IRA critic on Wed, 2023-05-10 20:16

Yes, that is correct with respect to RMDs. The other factor to consider is that any deductible IRA contribution made at 70.5 or later will reduce any later QCDs done from the IRA up to the amount of the IRA deduction for such contributions.

Submitted by Robert Wright on Wed, 2023-05-10 20:23

Just so I’m clear.Is the rediction to later QCDs basically FIFO?In this case, if he made a one-time $7,500 deductible contribution to his TIRA, the first $7,500 of fuure QCDs would be essentially zero.But, in order to make QCDs beyond this $7,500, he would have to make a $7,500 QCD in order to use this up this reduction – so to speak.  Year 1: He could make a QCD of $7,500;  but it would be taxable.Year 2: He could make tax free QCDs now that the $7,500 is “used up.” 

Submitted by Alan - IRA critic on Wed, 2023-05-10 23:23

That’s correct.  Once that 7,500 has been used to offset a QCD, additional QCD amounts are not offset as long as no additional deductible TIRA contributions have been made.

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