Understand the IRS’s calculations and tables.

Provided by Marc Aarons

As much as you would like to, you can’t keep your money in your retirement account forever.

These investment vehicles include 401(k)s, IRAs, and similar retirement accounts.¹  Under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from your 401(k), IRAs, or other defined contribution plans in most circumstances. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Another major change that occurred from the SECURE Act is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you had to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.²

How do you determine how much your RMD needs to be? It depends on whether or not you’re married, and if you are, if your spouse is the sole beneficiary of your IRA and less than 10 years younger than you are. For everyone else, the Uniform Lifetime Table can help.

Keep in mind that this article is for informational purposes only, and the table below is meant to provide some guidance. The table is neither a recommendation nor a replacement for real-life advice. Always contact your tax, legal, or financial professional before making any changes to your required minimum distributions.

Uniform Lifetime Table (additional ages can be found on IRS.gov)

You can use the following formula to calculate a rough estimate of your RMD:

1. Determine the year-end balance of your account.
2. Find your age on the table and note the distribution period number.
3. Divide the total balance of your account by the distribution period. For example, say you’re 72, and your account balance is $100,000. Your RMD may be about $3,906, based on the table.

Calculating your RMD isn’t tricky, but understanding your RMD’s role in your overall retirement strategy can be complicated. It’s important to note that penalties can apply if you don’t follow the mandatory distribution guidelines. A financial professional is an excellent resource for guidance.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party nor their affiliates. This information is derived from sources believed to be accurate. Please note: investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on to avoid any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{IRS.gov, September 23, 2020}
2. ^{NerdWallet.com, November 26, 2020}
3. ^{Internal Revenue Service IRA Required Minimum Distribution Worksheet, 2020}

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Investors may be eligible to “undo” certain retirement account withdrawals before September.

 Provided by Marc Aarons

 In March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. It was designed to help Americans impacted by the COVID-19 pandemic.¹

The new law offered investors a financial break. It gave people the option to skip required minimum distributions (RMDs) from traditional Individual Retirement Accounts (IRAs) and 401(k)-style plans in 2020. (Original owners of Roth IRAs never have to take RMDs from those accounts.)^2,3

Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax legal and accounting professionals before modifying your RMD strategy.

Some investors were left wanting. People who took some or all of their 2020 RMDs in January were initially prohibited from putting that money back – but lawmakers helped amend that rule.

The Internal Revenue Service (I.R.S.) recently expanded the terms of 2020 RMD relief. Now, 2020 RMDs taken from January 1 to June 30 may be fully or partly restored without penalty, and the deadline for doing so has been extended to August 31.³

The fine print about this is important, especially if you take your RMD in increments or have an inherited IRA in your financial picture.

Do you usually spread your IRA RMD out across the year? Then you may have a chance to restore the RMD amount to your IRA in the same way. In 2020, the I.R.S. is characterizing each redeposit of RMD assets as a tax-free rollover. Normally, you can only make this type of rollover once every 12 months, but the I.R.S. is lifting that restriction for 2020.³

Do you have an inherited IRA? In June, the I.R.S. issued guidance stating that the 2020 RMD waivers also apply to inherited traditional and Roth IRAs. RMDs from inherited IRAs taken in the first half of 2020 may be fully or partly redeposited with no penalties by August 31. The 10-year rule to empty an inherited IRA is still in place, but if an IRA owner passes away in 2020, then the 10-year drawdown of that IRA begins in 2021.^2,3

A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.

Incidentally, RMDs are still required this year from traditional pension plans (sometimes called defined benefit plans). The CARES Act does not permit such RMDs to be redeposited this year.³

A rule about early distributions from retirement accounts has also been relaxed. In 2020, account owners younger than 59½ have a chance to take a distribution of up to $100,000 from their retirement plan or IRA without the 10% early withdrawal penalty that normally applies. The withdrawn amount is still taxable, though.⁴

The CARES Act is a 335-page law, and some of its provisions and passages remain open to interpretation. A financial professional may be able to provide you with up-to-date information about the new rules.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations.

^{1 – Financial Industry Regulatory Authority (FINRA), April 10, 2020}

^{2 – Forbes.com, March 30, 2020}

^{3 – TheStreet, July 15, 2020}

^{4 – Forbes.com, July 6, 2020}

The post The I.R.S. Has Enhanced the 2020 RMD Waivers appeared first on Money Managers, Inc..

What are the limits for Donor-Advised Funds and Private Foundations?

 Provided by Marc Aarons at Money Managers, Inc. 

    Among the big changes in the 2017 Tax Cuts and Jobs Act (TCJA) were new limits on standard and itemized deductions. These limits and restrictions created new hurdles when planning deductions with tax advantages in mind. An exception was charitable deduction, which remained an option for high-income individuals looking to create a donation for the charity of their choice.

Donor-Advised Funds and Private Foundations. When making a charitable donation, two avenues to consider are donor-advised funds (DAFs) and private foundations (PFs). DAFs are established by public charities as a philanthropic vehicle; the donor can allow the donation to grow over time and advise on grants from the fund (assuming compliance approval), all while having an immediate tax benefit for that initial contribution. Private foundations offer total control in terms of the grants you’ve made and their distribution.^1,2

In contrast, a private foundation tends to be larger in size (sometimes in the millions of dollars) in comparison to DAFs (which can be set up with as little as $5,000) and generally represent a larger and less-flexible method of charitable giving.³

How much can you give? There are different tax considerations to keep in mind. Your limit in contributing to a private foundation is 30% of your adjusted gross income (AGI) in the year you make that donation. On the other hand, the same limit for a DAF is up to 60% of your AGI.¹

What about long-term appreciated marketable securities? Your limit to a private foundation is 20% of AGI for the year of the donation. For a DAF, it’s 30% of AGI.¹

Advantages to consider. There are advantages to both private foundations and donor-advised funds, both in terms of tax deductions and the control that you may exercise over how the funds are dispersed.^1,4

However, you should also be aware that the I.R.S. is on the lookout for those who may use the flexibility of donor-advised funds to create improper distributions, which may, for instance, directly benefit a donor’s family. For this reason, among others, it’s best to have several conversations with a trusted tax and financial professional, who can both assist you in the creation of any such entity as well as help you manage your charitable giving.^1,4

Marc Aarons may be reached at (714)887-8000 or Marc@OCMONEYMANAGERS.COM

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{MMI Disclosure
Citations.
1 – cnbc.com/2018/10/02/use-this-charitable-contribution-to-receive-immediate-tax-benefits.html [10/2/18]
2 – forbes.com/sites/catherineschnaubelt/2018/09/27/the-advantages-of-donor-advised-funds-as-a-charitable-giving-strategy/ [9/7/18]
3 – cafamerica.org/11-facts-about-donor-advised-funds-and-private-foundations/ [1/28/19]
4 – irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds [4/2/18]}

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