As the year draws to a close, it’s crucial for retirees and those nearing retirement to understand the intricacies of Required Minimum Distributions (RMDs) and Qualified Charitable Distributions (QCDs). These financial mechanisms play a significant role in retirement planning, especially in managing tax liabilities and supporting philanthropic endeavors. This article provides a comprehensive guide to navigating these concepts effectively.
Understanding RMDs
RMDs are mandatory annual withdrawals that individuals must make from their retirement accounts, including IRA, SIMPLE IRA, SEP IRA, and other qualified plans, starting at a specific age. The age threshold for RMDs recently shifted – if you turned 72 after December 31, 2022, the age requirement is now 73. Roth IRAs stand apart, with no mandatory withdrawals required during the owner’s lifetime. However, beneficiaries of Roth IRAs must adhere to RMD rules.
For designated Roth accounts in certain plans, RMD rules applied for 2022 and 2023 but will be obsolete from 2024 onwards. The RMD amount is calculated based on the account balance and life expectancy figures provided in IRS tables. This rule applies to various plans, including traditional IRAs, 401(k)s, and 403(b)s.
RMD Deadlines and Compliance
The initial RMD must be taken by April 1 of the year following the year you turn 73 (post-2022 change), and subsequent RMDs are due by December 31 each year. Failing to withdraw the correct RMD amount can result in a 50% excise tax on the amount not withdrawn as required. After the death of the account owner, the RMDs for beneficiaries are determined based on several factors, including the beneficiary’s relationship to the deceased and the age of the deceased.
Introduction to QCDs
A Qualified Charitable Distribution is a tax-efficient method for individuals aged 70½ or older to donate directly from their IRA to a qualified charity. QCDs are excluded from taxable income and can satisfy the RMD for those aged 73 or older with traditional IRAs. This mechanism allows for philanthropic gestures without increasing taxable income. However, QCDs made from Roth IRAs don’t yield tax benefits, and they are not available for 401(k) plans. The maximum annual limit for QCDs is $100,000, and they must go directly to a qualified charity without passing through the hands of the donor.
Practical Examples of RMDs and QCDs
Scenario 1: Managing RMDs
- John, aged 74, has a traditional IRA with a balance of $500,000. Based on IRS life expectancy tables, his RMD is approximately $20,000. If John fails to withdraw this amount, he faces a penalty of $10,000 (50% of the shortfall).
Scenario 2: Utilizing QCDs for Tax Benefits
- Mary, aged 71, decides to donate $10,000 from her IRA to a qualified charity. By doing so, she reduces her taxable income, as the QCD excludes this amount from her gross income.
QCDs and RMDs: A Synergistic Approach
QCDs can be strategically used to fulfill RMD requirements, offering a win-win: supporting a charity while mitigating tax implications. They are particularly advantageous for those who take the standard deduction, as they reduce taxable income without the need for itemizing deductions. The benefits of QCDs, however, are limited when it comes to Roth IRAs and 401(k)s.
Year-End Planning with QCDs
The IRS reminds those aged 70½ or older about the option to make QCDs. For IRA owners looking to set up a QCD for 2022, it’s essential to act swiftly to ensure the transaction is completed before the year’s end. Unlike regular IRA distributions, QCDs are tax-free if directly paid from the IRA to a charity. Married couples, each with an IRA and aged 70½ or older, can collectively exclude up to $200,000 per year through QCDs. These distributions must be reported on the federal income tax return using Form 1099-R. It’s also imperative to obtain a written acknowledgment from the charity before filing the return.
Tax Planning Strategies with RMDs and QCDs
Strategy 1: Timing Your Distributions
- Consider taking your first RMD in the same year you turn 73 to avoid doubling up on distributions the following year, which could push you into a higher tax bracket.
Strategy 2: Leveraging QCDs
- If you are charitably inclined, use QCDs to satisfy your RMD requirements while keeping your taxable income lower. This is especially beneficial if you don’t itemize deductions.
Resources and Further Information
For more detailed information, IRS publications such as Publication 590-B (Distributions from Individual Retirement Arrangements (IRAs)) and Publication 526 (Charitable Contributions) are invaluable resources. These publications offer comprehensive guidance on the rules, calculations, and deadlines pertaining to IRA distributions and QCDs.
Conclusion
Understanding and effectively managing RMDs and QCDs is pivotal for retirees and those nearing retirement. It’s not only about compliance with tax laws but also about optimizing retirement funds and supporting charitable causes in a tax-efficient manner. As we approach year-end, timely action is crucial to meet these deadlines and maximize the benefits of these financial tools.
For more information on RMDs and QCDs, read Chapter 6 of “Wealth on Purpose” by Bryan Ballentine. If you have any questions, give us a call!
Have a great weekend!
Source: Located at the bottom of the articles
Golf Tip of the Week
5 Different Golf ball Rollback Scenarios, Explained For Amateur Golfers
There’s a storm brewing in golf right now. Well, another storm.
As Golf Digest reported last week, there is a golf ball rollback, in some form, coming.
“We have been very clear, as has [CEO] Mike Whan at the USGA,” R&A head Martin Slumbers told Golf Digest last month. “There are only three options: We can bifurcate; you change the whole game; or you do nothing. And doing nothing is not an option. We stand by that.”
The golf ball rollback, if you’re unfamiliar, is a proposed rule change by the USGA and R&A, golf’s rule-making bodies, to address the continued increase in the distance professional golfers are hitting the ball. Proponents of the rollback say it protects historic golf courses from becoming obsolete, among other things. Opponents of the rollback say these are golf’s old-school elitists trying to hamper progress.
Personally, I’m a skeptic on the rollback, but wherever you land, it’s increasingly clear that something is going to happen, and probably soon with a rule that will apply eventually to all golfers, not just elite players. So let’s do a quick run through of a few potential outcomes, ranked from least to most severe.
Rollback fails, status quo remains
Given all the efforts in recent years to study the issue, then take a stance that distance is a matter that needs to be addressed, and with the pending rule set to be announced, it’s hard to see the governing bodies announcing a full-on retreat anytime soon. However, there’s a potential case they may be forced into one. Perhaps it’s via a lawsuit from equipment manufacturers, or blowback from the public that’s so heated they get spooked. Or maybe the game’s other power players, like the various tours, simply refuse to abide by the new rule, which pulls the governing bodies back from their plans.
Again, it’s unclear how or if the governing bodies could land in a “let’s just forget about it” position, but the result would be the least drastic of all: Golf takes the scenic route to everything staying the same.
Tournament-specific golf balls
Of course, everything above would require the powers-that-be to back away from their own idea of a rollback. But if the response to impacting average golfers with a rollback is harsh enough, it could be that the governing bodies return to their original proposal of a model local rule. The fight to get here though might be so heated that potentially they only enact that rule sparingly, on specific courses. The Open Championship at the Old Course, for instance, or the U.S. Open at Merion, etc.
Week in, week out, things will basically stay the same. But when the championship goes to a legacy course that can’t or won’t be changed, then the rolled back ball comes out.
Competitive-recreational golfer split
Turn the temperature one notch further up, and you’ve got something similar to the previous proposal being adopted (aka, a local rule that can be enacted at-will by tournaments), but one that isn’t used sparingly. Rather, it’s adopted on a wider scale as a new normal.
Every USGA or R&A tournament adopts the rolled-back ball, for instance, or every NCAA tournament. This would, I would guess, end up dividing down competitive-recreational golfer lines. If you’re playing in non-handicap stroke play tournaments, there’s a good chance you’re using the rolled back ball.Of course, this gets messy if the major tours, like the PGA Tour, doesn’t adopt the rule (which officials have said is their current stance), but we’ll get to that.
Rollback for everyone
Perhaps it’s posturing, perhaps it’s hinting at what’s ahead. But there were inklings in Slumbers’ comments that it may be cleaner to adopt a rollback across all of golf. And that is what sources tell Golf Digest is coming soon from the USGA and R&A.
This is one of the scenarios in which the proposed rule would likely affect you, the golfer. The rolled back ball is designed to chop 20 yards off the drives of golf’s best players. What would it mean for you? Without knowing the ball, it’s hard to know. Probably something slightly less but similar.
Some golfers would say they would simply refuse to adopt the rolled back ball, as they’ve indicated in a recent Golf Digest poll in which more than 60 percent of respondents said they wouldn’t honor a new rule that restricted distance.
Breakaway chaos
And then there’s the most severe outcome of them all: Some kind of standoff that doesn’t get resolved, and instead escalates the divide.
What do I mean? Let’s say the USGA and R&A announce a rollback of some sort, whether for some or all. But then, the PGA Tour and LIV refuse to adopt it, and many of the major equipment manufacturers simply refuse to make a new golf ball model. Perhaps there’s even a threat to form a breakaway governing body to compete with the others.
Who knows how it’ll all turn out, all that’s clear is that in this scenario, it gets messy. Very messy.
Tip adapted from golfdigest.comi
Recipe of the Week
Pomegranate-Glazed Christmas Ribs
8-10 Servings
Ingredients
- 1/2 cup packed dark brown sugar
- 2 tablespoons chili powder
- 1/4 teaspoon ground allspice
- 1/4 teaspoon cayenne pepper
- 1/4 teaspoon smoked paprika
- Kosher salt and freshly ground black pepper
- 2 racks baby back ribs (about 2 1/4 pounds total)
- 3/4 cup pomegranate molasses
- 1 cup pomegranate juice
- 2 tablespoons balsamic vinegar
- 1 jalapeño, thinly sliced
- 1/2 cup ketchup
- 2 tablespoons Worcestershire sauce
- 1/2 cup fresh pomegranate seeds
Instructions
- Combine the dark brown sugar, chili powder, allspice, cayenne, smoked paprika, 1 tablespoon salt and a generous amount of black pepper in a medium bowl.
- Brush the baby back ribs all over with 1/4 cup of the pomegranate molasses. Sprinkle evenly with the spice mixture, pressing it over both sides of the ribs. Cover and refrigerate for at least 2 hours and preferably overnight.
- Preheat the oven to 250 degrees F.
- Add the pomegranate juice, balsamic vinegar and jalapeño to a roasting pan. Place the ribs on top and tightly cover the roasting pan with foil. Bake until the ribs are juicy, and tender and the meat easily pulls away when pierced with a fork, 1 1/2 to 2 hours.
- Set the ribs aside on a baking sheet to rest, about 30 minutes. Position an oven rack in the top third of the oven. Turn the oven heat to broil.
- Meanwhile, place the roasting pan over 2 burners on the stovetop over medium-high heat. Add the ketchup, Worcestershire sauce and remaining 1/2 cup pomegranate molasses to the pan and whisk to combine. Simmer the sauce until reduced by half and thick like syrup, 15 to 20 minutes.
- Brush the ribs with 1/2 cup of the barbecue sauce. Broil the ribs on the top rack, rotating the baking sheet halfway through if necessary, until nicely caramelized, 3 to 5 minutes.
- Slice the ribs and transfer to a serving platter. Garnish with the pomegranate seeds and serve with the remaining barbecue sauce on the side.
Recipe adapted from Foodnetwork.comii
Health Tip of the Week
Brain Foods That Help You Concentrate
Ginseng, Fish, Berries, or Caffeine?
Listen to the buzz about foods and dietary supplements, and you’ll believe they can do everything from sharpen focus to enhance memory, attention span, and brain function. But do they really work? There’s no denying that as we age, our body ages right along with us. The good news is that you can improve your chances of maintaining a healthy brain if you add “smart” foods and drinks to your diet.
Caffeine Can Make You More Alert
There’s no magic bullet to boost IQ or make you smarter — but certain substances, like caffeine, can energize you and help you concentrate. Found in coffee, chocolate, energy drinks, and some medications, caffeine gives you that unmistakable wake-up buzz, though the effects are short-term. And more is often less: Overdo it on caffeine and it can make you jittery and uncomfortable.
Sugar Can Enhance Alertness
Sugar is your brain’s preferred fuel source — not table sugar, but glucose, which your body processes from the sugars and carbs you eat. That’s why a glass of OJ or another fruit juice can offer a short-term boost to memory, thinking, and mental ability. Have too much, though, and memory can be impaired — along with the rest of you. Go easy on the added sugar, as it has been linked to heart disease and other conditions.
Eat Breakfast to Fuel Your Brain
Tempted to skip breakfast? Studies have found that eating breakfast may improve short-term memory and attention. Students who eat it tend to perform better than those who don’t. Foods at the top of researchers’ brain-fuel list include high-fiber whole grains, dairy, and fruits. Just don’t overeat; researchers also found high-calorie breakfasts appear to hinder concentration.
Fish Really is Brain Food
A protein source linked to a great brain boost is fish — rich in omega-3 fatty acids that are key for brain health. These healthy fats have amazing brain power: A diet with higher levels of them has been linked to lower dementia and stroke risks and slower mental decline; plus, they may play a vital role in enhancing memory, especially as we get older.
For brain and heart health, eat two servings of fish weekly.
Add a Daily Dose of Nuts and Chocolate
Nuts and seeds are good sources of the antioxidant vitamin E, which has been linked in some studies to less cognitive decline as you age. Dark chocolate also has other powerful antioxidant properties, and it contains natural stimulants like caffeine, which can enhance focus. Enjoy up to an ounce a day of nuts and dark chocolate to get all the benefits you need with a minimum of excess calories, fat, or sugar.
Add Avocados and Whole Grains
Every organ in the body depends on blood flow, especially the heart and brain. A diet high in whole grains and fruits like avocados can cut the risk of heart disease and lower bad cholesterol. This reduces your risk of plaque buildup and enhances blood flow, offering a simple, tasty way to fire up brain cells. Whole grains, like popcorn and whole wheat, also contribute dietary fiber and vitamin E. Though avocados have fat, it’s the good-for-you, monounsaturated fat that helps with healthy blood flow.
Blueberries Are Super Nutritious
Research in animals shows that blueberries may help protect the brain from the damage caused by free radicals and may reduce the effects of age-related conditions such as Alzheimer’s disease or dementia. Studies also show that diets rich in blueberries improved both the learning and muscle function of aging rats, making them mentally equal to much younger rats.
Benefits of a Healthy Diet
It may sound trite but it’s true: If your diet lacks essential nutrients, it can hurt your ability to concentrate. Eating too much or too little can also interfere with your focus. A heavy meal may make you feel tired, while too few calories can result in distracting hunger pangs.Benefit your brain: Strive for a well-balanced diet full of a wide variety of healthy foods.
Vitamins, Minerals, and Supplements?
Store shelves groan with supplements claiming to boost health. Although many of the reports on the brain-boosting power of supplements like vitamins B, C, E, beta-carotene, and magnesium are promising, a supplement is only useful to people whose diets are lacking in that specific nutrient. Some researchers are cautiously optimistic about ginseng, ginkgo, and vitamin, mineral, and herb combinations and their impact on the brain, but more proof is still needed.
Check with your doctor.
Get Ready for a Big Day
Want to power up your ability to concentrate? Start with a meal of 100% fruit juice, a whole-grain bagel with salmon, and a cup of coffee. In addition to eating a well-balanced meal, experts also offer this advice:
- Get a good night’s sleep.
- Stay hydrated.
- Exercise to help sharpen thinking.
- Meditate to clear thinking and relax.
Tip adapted from WebMD.comiii
Copyright (C) 2021. Ballentine Capital Advisors. All rights reserved.
Our mailing address is:
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Sources:
Retirement Topics — Required Minimum Distributions (RMDs)
Qualified Charitable Distribution (QCD): What It Is, How It Lowers Your Taxes
Required Minimum Distributions for IRA Beneficiaries
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Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.
This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.
No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.
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i https://www.golfdigest.com/story/golf-ball-rollback-distance-scenarios-explained-golf-digest
ii https://www.foodnetwork.com/recipes/food-network-kitchen/pomegranate-glazed-christmas-ribs-17162708
iii https://www.webmd.com/add-adhd/ss/slideshow-adhd-hyperfocus-tips
