A new year brings a fresh start, and after 2020, we need that more than ever. You probably have a few resolutions for 2021. When making your list of goals for the new year, don’t overlook your IRA. Here are a few suggestions for your IRA for 2021.
Ah, the end of the year. Snow is drifting, music plays quietly in the background. Ma in her kerchief, Papa in his cap, just settling down for a long winter’s nap…
Nope. No time for that. ‘Tis the season of BUSY, BUSY, BUSY!
Did you write a check to a charity from your checkbook IRA in hopes that it would be a qualified charitable distribution (QCD) for 2020? If so, you better make sure the charity in fact CASHES the check before the end of the year.
The end of 2020 is almost here. With the end of the year come certain retirement account deadlines. Here are 5 items you should have on your 2020 year-end retirement plan to-do list:
1. Do a 2020 conversion
If you are considering converting an IRA to a Roth IRA in 2020, time is quickly running out. The deadline for 2020 conversion is the end of the calendar year. There is a common misconception that a conversion can be done up until your tax-filing deadline.
Thanksgiving is behind us, and the end of the year will be here soon. (Many of us are truly thankful for that!) This is a good time to remind you of certain tax breaks that will expire before we turn over the calendar to 2021. Many of these actions require cooperation from third-party IRA custodians and plan administrators, so you need to act fast. As that great philosopher Yogi Berra once said, “It gets late early out there.”
Question:
Sir,
I inherited an IRA from my sister two years ago. She was collecting RMDs at 78.
My question involves collecting my sister’s RMD. Does the 10-year withdrawal go into effect now or do I use the table under my age, which is 73?
Charles
As the coronavirus pandemic has raged on, we have seen devasting images of overwhelmed hospitals and long lines of cars at food banks. If you are fortunate enough to have money to spare, you might be thinking about how you can help. One option to consider is a qualified charitable distribution (QCD).
QCDs Still Available for 2020
In response to the pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress. Included in this giant relief package was a provision that waives required minimum distributions (RMDs) for 2020 from retirement accounts.
An initial ROTH conversion was completed in 2018 for tax year 2018. A second conversion was completed in 2019 for tax year 2019. There was no ROTH IRA account prior to 2018 and the account owner is over 59 ½. The 5-year holding period will be satisfied on 1/1/2023. Does each ROTH conversion transaction have a separate 5-year clock to determine whether earnings are tax free or is it just the initial transaction? Thank you in advance for your assistance.
Dan
Answer:
Dan,
For those under the age of 59 ½, yes, each Roth conversion has its own 5-year clock. However, the account holder you are inquiring about is already over 59 ½. As such (and since this is his very first Roth IRA account), he only has to concern himself with the 5-year clock on the 2018 conversion.
As we gradually peel back the layers of this legislative onion called the SECURE Act, more and more discoveries come to light. One revelation is how qualified charitable distributions (QCDs) are potentially affected. Could a QCD become, effectively, a taxable distribution? A looming cloud could soon peer over the shoulders of otherwise generous and giving individuals.
As a reminder, QCDs can be done by IRA owners (and inherited IRA owners) who are age 70½ or older. (The SECURE Act raised the age of RMDs to 72. However, the Act did not increase the age for QCDs - 70½ is the status quo.) IRA assets are transferred directly from an IRA to an eligible charity, and the dollar amount of the QCD is excluded from the account owner’s taxable income up to a maximum of $100,000 annually.
As of the writing of this Slott Report submission, it is Monday, December 23, 2019. T-minus 8 days before the end of the year, which means IRA owners have a tight window to complete any year-end transactions. Once the calendar turns, if not finalized in time, some items will be forever lost. Here are six transactions that absolutely must be completed within the next 8 days to avoid penalty and/or a lost opportunity:
Over 70 ½ RMDs. While the first RMD for the year a person turns 70 ½ can be delayed until April 1 of the next year, all future RMDs must be taken before the end of the calendar year. There is no wiggle room.
Question:
As year-end approaches, I have just exceeded my 2019 RMD, combining total QCD's during the year and my regular monthly IRA withdrawals.
If I make additional charitable contributions from my IRA this month, are they still considered tax-advantaged QCD's, or has my QCD opportunity ended because I've already exceeded the annual RMD?
Answer:
This is an area where there is a lot of confusion! While you can use a qualified charitable distribution (QCD) to count toward your required minimum distribution (RMD), your QCDs for the year are not limited to the amount of your RMD.
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