September 2018 Newsletter to Clients

Enjoy this month’s edition that features some tax planning reminders about Required Minimum Distributions.

Required Minimum Distributions - As those of you over the age of 70 ½ already know, the federal government finally gets that income tax we avoided paying for all those years as we contributed to IRAs, 401(k)s and 403(b)s when we take withdrawals from those accounts. And, after age 70 ½, Required Minimum Distributions (RMDs) kick in to ensure we eventually pay that deferred income tax. Below are two reminders about RMDs:

1. A client recently read a piece about RMDs and asked Bob and Ramsey to make sure this wasn’t happening to him. The piece was on aggregating RMDs between spouses. For instance, suppose you and your spouse file a joint tax return. You have an RMD for your IRA of $4,000 and your spouse has an RMD for their IRA of $2,000. To make things easy, you decide to take $6,000 out of your IRA. After all, they are both IRAs and since you file jointly, the income will show up on the same return, right?

The answer is no, a joint RMD is not allowed. Retirement accounts are individual accounts – there is no such thing as a Joint IRA or a Joint 401(k). As a result, you must always take your RMD from your own account. If your RMD is not taken you may be subject to a 50% penalty in addition to the income tax due. Rest assured, if we manage your IRA or 401(k), we will make sure your RMDs are taken properly.

2. A good way to pay less income tax on your RMDs is to make your charitable contributions directly from your tax-deferred accounts. For instance, we can arrange for donations to be sent directly from your IRA to a charity or charities. If sent directly, the donation qualifies as a portion or possibly all of your RMD for the year. As a result, you won’t pay any income tax on the portion of your RMD that was contributed to a qualified charity, such as your church, and you will still satisfy your RMD.

For example, if your RMD from your IRA is $5,000 for the year and you normally contribute $2,000 to your church and $1,000 to God’s Pantry Food Bank, the $3,000 of combined charitable contributions directly from your IRA will satisfy part of your RMD. You will not pay income tax on that $3,000. The remaining $2,000 of your RMD, however, is subject to income tax.

Thank you for your continuing confidence.

Past performance is no guarantee of future results. The opinions expressed are those of Moneywatch Advisors, Inc. and are no guarantee of the future performance of any particular fund. This information is for educational purposes only and is not intended as investment advice. Please consult your financial advisor for more detailed information or for advice regarding your individual situation.