Matt Smith

If you are charitably inclined and have an IRA, you might want to consider doing a Qualified Charitable Distribution (QCD) for 2019. The deadline for a 2019 QCD is fast approaching. It is December 31, 2019 and many custodians have even earlier cutoffs. Don’t miss out on this valuable tax break. Here are ten QCD rules you need to know. 1. Must be Age 70 ½ IRA owners who are age 70½ and over are eligible to do a QCD. This is more complicated than it might sound. A QCD is only allowed if the distribution is made on or after the date you actually attain age 70 ½. It is not sufficient that you will turn 70 ½ later in the year. 2. Beneficiaries Can Do QCDs QCDs are not limited to IRA owners. An IRA beneficiary may also do a QCD. All the same rules apply, including the requirement that the beneficiary must be age 70 ½ or older at the time the QCD is done.

Earlier this month, a tax notification service released information declaring that “North Carolina Governor Roy Cooper signed legislation allowing an income exclusion for distributions from individual retirement accounts (IRAs) to charities by taxpayers age 70½ or older. Beginning with the 2019 tax year, North Carolina conforms to the federal income exclusion from personal income tax for a qualified charitable distribution from an individual retirement plan by a person who has attained the age of 70½.” Were individuals living in North Carolina ineligible to do QCDs prior to the governor signing this legislation? No – QCDs were certainly allowed in North Carolina. Every IRA owner who is otherwise eligible to do a QCD can do so. What this announcement was referring to is the impact QCDs have on state taxes.

Question: Hello Ed, I have received differing views on making a 401(k) conversion to a Roth IRA. I'm a 64 year old retired federal employee and plan to transfer all my funds from the TSP to my traditional IRA. From there I plan to make annual conversions to my long established Roth IRA. Is there an issue with the five-year rule that would prevent me from being able to make withdrawals from the Roth during the next few years? Thanks for your help. Dan Answer: Hi Dan, Your plan works! You can roll over your TSP to a traditional IRA and make series of conversions to a Roth IRA without worries about taxes and penalties on any Roth distributions. How is this possible? Well, all your converted funds can be accessed tax and penalty free because you are over age 59 ½.

Many 401(k) plans must pass two annual nondiscrimination tests: the ADP test and the ACP test. The November 11 Slott Report discusses the ADP test. This Slott Report tackles the ACP test and the options available to 401(k) plans that fail one or both tests. ACP test. While the ADP test takes into account pre-tax deferrals and Roth contributions, the ACP test considers after-tax contributions and employer matching contributions. First, the plan must calculate a contribution percentage for each employee. Your contribution percentage is the sum of your after-tax contributions and employer matching contributions, divided by your pay for the year. (If you are eligible but don’t make any after-tax contributions and don’t receive any matching contributions, your ACP percentage is 0 %.)

If you participate in a 401(k) plan, you probably know about the annual limit on the amount of your deferrals (for 2019, $19,000, or $25,000 if over age 50). But if you are a high-paid employee, another limit may apply. Welcome to the IRS nondiscrimination rules! These rules are designed to ensure that retirement plans don’t favor “highly compensated employees” (HCEs) at the expense of other employees. In the 401(k) context, the rules limit the amount of deferrals that HCEs can make, depending on the level of deferrals all other employees make. (The nondiscrimination rules don’t apply to solo 401(k) plans.) HCE’s. You’re an HCE for a particular year if: you, or certain family members, own more than 5% of the plan sponsor during that year or the prior year; or

Question: Hi Ed, My question: Is there any way to do a charitable distribution from my IRA before I reach RMD age? I am recently retired and 65 years old. Thanks! Marty Answer: Marty - The number-one requirement to be able to do a Qualified Charitable Distribution (QCD) is that the IRA account owner must be 70 ½ years old. We are not talking about the year in which you turn 70 ½, we are talking about actually being 70 ½. In fact, even on inherited IRAs, where the deceased account owner may have already reached 70 ½, it does not change the fact that the current account owner of the inherited IRA must also be 70 ½ before they can do a QCD.

The IRS has issued new proposed life expectancy tables for calculating required minimum distributions (RMDs) from IRAs and employer plans. This has been a long time coming as the tables currently in use were issued back in 2002. The new tables account for increased life expectancy and should result in lower RMDs for most IRA owners and beneficiaries. The new tables are currently only proposed, and a hearings and comment period has been scheduled before they can be finalized. If all goes as planned, they would be used for calculating 2021 RMDs. RMDs for 2020 are not affected and cannot be calculated using the new tables.

Hypersensitivity to caffeine - this is my affliction. So much so that I limit myself to one energy drink per week. It must be opened before noon and should be nursed for a minimum of 90 minutes. Any violation could result in me trying to paint my house with one hand while simultaneously trimming the hedges with the other. In fact, it was on a business trip several years ago when I first identified my biological caffeine reaction. Energy drinks were relatively new to the market and I consumed “a few.” Without ever going to sleep, I distinctly remember aggressively ironing a shirt in my hotel room at 4:30 AM, wild-eyed, wondering, “What is the big deal with these energy drinks? I don’t feel any effects. Now, what else needs ironing?” Everything in moderation. ‘Tis the key to a happy and balanced life, they say. This also holds true in the retirement world. Here are a handful of items one must monitor closely and consume with great care:

IRAs are for saving for retirement. However, as these accounts have grown over the years, many IRA owners still have significant funds in their IRA at their death. This means that estate planning for IRAs is essential. Effective estate planning for your IRA starts with your beneficiary designation form. Whoever is listed on that form will be considered the beneficiary of your IRA. You must give serious thought to who that should be. The outcomes will be very different depending on your choice. Name your spouse. This is a very popular option and why not? For many people a spouse is the logical IRA beneficiary and this can be a good move from a tax and estate planning perspective. Spouse IRA beneficiaries have options that nonspouse beneficiaries do not have.

Question: I am 72 years old and converting my traditional IRA to a Roth IRA a little at a time each year. Do I need to concern myself with a 5-year rule for earnings if I were to withdraw ALL my Roth IRA at once? If I do have to address that issue, is there a way to track earnings for newly converted funds? Regards, Marc Answer: Hi Marc, Whether you need to be concerned about the 5-year rule depends on when your first Roth contribution was made or your first conversion was done. The 5-year clock for tax-free Roth earnings starts ticking on January 1 of the year of your first Roth contribution or conversion.