Dec 30

Qualified Charitable Distributions (QCDs) To Be Allowed for Self-Directed IRAs for 2014

Congress has passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014) allowing QCDs for 2014

On December 19, 2014, with just over two weeks left in the 2014 calendar year, Congress passed the “extenders bill” for 2014 (the Tax Increase Prevention Act of 2014). The bill, which extends the life of a number of tax breaks through 2014, passed the Senate 76-16. Only 60 votes were needed for approval. President Barack Obama is expected to sign the bill into law shortly. This bill revived qualified charitable distributions (QCDs) for 2014 only. A QCD must be made in 2014 and cannot be made in 2015. “The “extenders bill” which extends Qualified Charitable Distributions for 2014 offers exciting tax planning opportunities to retirement account holders, “ stated Adam Bergman, a tax partner with the IRA Financial Group. “Of course, most tax practitioners would have like to have the QCD extended much earlier in the year allowing for more time for tax planning, but it is a huge boost that it was included in the bill, “ stated Mr. Bergman.

Qualified Charitable Distributions (QCDs) To Be Allowed for Self-Directed IRAs for 2014According to Mr. Bergman, the QCD is essentially a tax efficient method for donating to a charity in light of the IRS required minimum distribution (RMD) rules. Under the RMD rules, one is required to withdraw a minimum amount from your retirement account each year and report that amount as income. You generally have to start taking withdrawals from your IRA or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner. Essentially, a QCD allows to take up to $100,000 and donate it directly to a charity out of an IRA so the charity gets the full $100,000 and you can reduce the amount of your RMD. The downside is that you don’t get the charitable deduction, but the upside is that you don’t have to claim the charitable donation as income as part of your RMD. The following are some of the main rules involved in taking a QCD for the 2014 taxable year: (i) The IRA owner must be age 70 ½ or older; (ii) The donor must directly transfer the money tax-free to an eligible organization; (iii) The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization; (iv) Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible; (v) Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless non-deductible contributions are transferred; (vi) Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules; (vii) and for a married couple where each spouse has their own IRAs, each spouse can contribute up to $100,000 from their own IRAs.

The inclusion of the QCD law in the “extenders bill” will help retirement account holders shied up to $100,000 of income that would have otherwise have to pay as an RMD and at the same time help many U.S, charities that could really benefit from the funds. “The QCD law is a really generous tax break the offers to retirement account holders. The QCD allows to take up to $100,000 that would have been subject to tax as part of their RMD requirements and and donate it directly to a charity out of an IRA so the charity gets the full $100,000,” according o Mr. Bergman. “The IRS, of course, is not going to allow you to reduce your income tax as well as receive a charitable deduction, but the QCD law is a noble gesture on the part of the IRS to help charities out, “stated Mr. Bergman. The downside is that you don’t get the charitable deduction, but the upside is that you don’t have to claim the charitable donation as income as part of your RMD.

In the case of a “checkbook control” self-directed IRA LLC, an IRA holder that wishes to make a QCD for the 2014 taxable year, must send the funds to the IRA custodian and then have the IRA custodian direct the funds to the charity. The QCD should not be made directly from the IRA LLC to the charity, but should go through the IRA custodian.

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP.

IRA Financial Group is the market’s leading solo 401k plan provider. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

To learn more about the IRA Financial Group please visit our website at or call 800-472-0646.

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Oct 29

Dealing With RMDs in Your IRA

If you have a traditional IRA, you enjoy tax-deferred savings…that is until you reach age 70 1/2.  Once there, you are required to start withdrawing from the account, whether you need the money or not.  These are what’s known as required minimum distributions, or RMDs.  Here we’ll tell you what you need to know about them.

First off, why are they required?  When contributing to a traditional plan, you do not pay taxes on those amounts each year.  Instead, the taxes are deferred until you withdraw from the account.  However, some people do not need the money during retirement or they want to leave it to a beneficiary.  The government thinks you’ve avoided paying taxes long enough, so when you turn 70 1/2, you must start withdrawing money from your IRA and paying the taxes on that amount.  Failure to take the full RMD will result in a hefty 50% penalty on the amount that should’ve been withdrawn plus interest.

Don't forget to take your RMD from your IRAWhen taking your first RMD, you have until April 1 of the year after you turn 70 1/2.  Each subsequent RMD must be taken by December 31.  Like all distributions from the IRA, RMDs are treated as ordinary income which may effect your tax rate.  This is especially true if you push your first one into the following year.  You still have to take your next RMD by the last day of the year meaning you would have taken two RMDs which could greatly effect your taxes and tax rate.

Now, how do you figure out your RMD?  You must take the December 31 ending balance of each IRA you own and divide it by your life expectancy factor as found in Appendix C of IRS Publication 590.  The IRS also provides a worksheet you can use when figuring out your RMD.  Lastly, FINRA provides a calculator you can use as well.  Even though you have to figure out the RMD from each IRA you own, you do not have to take the amount from each plan.  You may opt to take the total RMD from one account.  This can be a poor performing account or one that needs rebalancing.

It’s important to note that if you have 401(k) plans, RMDs must be taken from each account individually.  It’s a good plan to rollover your old 401(k)’s to an IRA and only maintain one 401(k) plan if you are still working.

Lastly, here are a few strategies you can utilize to lessen the effect that RMDs will have on you.  If you are already 70 1/2, one thing you can do for this year is a qualified charitable distribution, or QCD.  You can make a cash donation of up to $100,000 to an IRS-approved public charity.  It can be taken from your IRA as part of your RMD but it will not be included in taxable income.  This option probably won’t be extended into next year, so if you don’t need the money, you can help out a deserving charity.

Another option is to convert your traditional assets into a Roth IRA.  You pay the taxes on the amount converted, but there are no RMDs on Roth plans.  Note that beneficiaries to a Roth will have RMDs later on.

Finally, you can start to draw down your account before you reach age 70 1/2.  Once you are age 59 1/2, you can start withdrawing from your retirement plans penalty-free.  Withdraw as much as you can without pushing you into a higher tax bracket so that your account balance is less and therefore your RMDs won’t be as much.

RMDs are a fact of retirement savings, so make sure you are prepared for them when the time comes.  The tax experts at the IRA Financial Group can help you figure out the best plan when it comes to your retirement.  Give them a call @ 800.472.0646 or visit their website today!

Jan 30

Qualified Charitable Donations

Section 208 of the American Taxpayer Relief Act of 2012, (P.L. 112-240) (the Act), enacted Jan. 2, 2013, extended application of Internal Revenue Code section 408(d)(8), reauthorizing qualified charitable distributions (QCDs) made during 2012 and 2013.  Here are some QCD examples to help navigate those rules.

Pre-Act QCD Made

An individual retirement account creator made an IRA distribution payable to a charity that would have qualified as a QCD, but for the absence of legislation extending the availability of QCDs after Dec. 31 2011.  Pre-Act QCDs made at any time during 2012 now qualify.  Some wrote $100,000 in checks from their IRAs directly to qualifying charities during 2012, just in case Congress would retroactively extend QCDs.  Because Congress did so, those checks qualify as 2012 QCDs.

Contributions Made After RMD Withdrawal

An IRA creator-taxpayer withdrew $100,000 of 2012’s required minimum distribution in December 2012; he made $100,000 of charitable contributions in December 2012 after the IRA withdrawal.  He may designate up to $100,000 of December 2012 QCDs as 2012 QCDs made out of the 2012 RMD. In addition, all of 2013’s $100,000 QCD is available.

Contribution Made After IRA Withdrawal

An IRA creator made $100,000 of 2012 IRA withdrawals during December 2012.  He made $100,000 of charitable contributions in January 2013.  The January contribution can be treated as a 2012 QCD out of those December 2012 withdrawals.  In addition, all of 2013’s $100,000 QCD limit is available.

Automatic Withdrawals Made

An IRA creator and IRA custodian agreed to automatic quarterly withdrawals totaling the 2012 RMD.  The last quarterly RMD was made during December 2012.  The IRA creator may, by January 31, 2013, make a cash contribution of up to $100,000 out of the December 2012 quarterly distribution.  That amount will be treated as a QCD.

Effect of DOMA

Each of two spouses wishes to make a 2013 QCD.  Each has a $100,000 limit; the limit applies to individuals and isn’t affected by marriage.  This means the federal Defense of Marriage Act doesn’t affect their QCDs. .

RMD Not Taken in 2012

A taxpayer didn’t take $100,000 of 2012’s RMD before Dec. 31, 2012.  During January 2013, he can designate up to $100,000 in charitable contributions as 2012 QCDs.  In addition, all of 2013’s $100,000 QCD limit is available.

2013 Withdrawal Made in January

A taxpayer withdrew $100,000 of 2013’s RMD in January 2013.  Charitable contributions made before the withdrawal occurred may not be designated as QCDs.  Nor may January 2013 contributions made after the withdrawal occurred. But all of 2013’s $100,000 QCD limit is still available for future use any time during 2013.

These are just a few examples, check out a more comprehensive list right here.  If you need help handling your donations or have any other IRA related questions, feel free to contact the tax experts at the IRA Financial Group today!