With the advent of the SECURE Act just over two months ago, contributing to a Roth IRA is an even more compelling retirement savings instrument than ever before.

The SECURE Act was enacted at the end of December, 2019.  As I mentioned in a prior post, titling this new act, “Setting Every Community Up for Retirement Enhancement,” provided a cute but somewhat misleading name for an act that does away with some of the important benefits that made Regular, Contributory IRAs a staple for many families. That is why, now, more than ever, a Roth IRA may be even more beneficial for individuals that are able to qualify for making a 2019 contribution. 

For 2019, Individuals who qualify to contribute to a Roth IRA based on income are able to contribute $6,000 to their Roth IRA. For individuals who are over age 50, that amount is $7,000, which includes a catch-up provision of $1,000.  Individuals can make a 2019 contribution up to the date they file their 2019 taxes, prior to April 15, 2020. 

Roth IRAs do not provide a current tax deduction. The true benefit of a Roth IRA comes in the form of tax-free build-up of growth in the account and subsequent tax-free distributions for retirement… or for your heirs if your Roth is still around when that time comes.   

Consider a scenario for an individual, age 35, contributing $6,000 per year to a Roth IRA and retiring at age 65 with a 5% hypothetical return in a stock/bond portfolio. The tax-free account value would be $467,063 at age 65.  That is $467,063 tax-free dollars that could be used to generate tax-free retirement income.  Or, this “bucket of money” could be used for lump sum purchases for things such as a new car to begin your retirement, a vacation home, trips, or any other purchases that would be better served coming from a non-income taxable retirement account. 

A 50-year old worker can contribute $7,000 per year to a Roth IRA.  Let’s assume this 50-year old worker contributes $7000 per year for the next 15 years until they are 65. Assuming a hypothetical 5% Rate of Return in an equity/bond portfolio, the balance at an age 65 retirement would be $170,985. Talk about a major enhancement (to borrow from the SECURE Act title)…. to your retirement!  Monthly contributions to a Roth IRA for a 50-year old equating to the $7,000 per year allowable contribution would be $583.33 per month. 

Tax-free retirement income is very important in retirement.  Many individuals fund or even over-fund their 401(k)s, 403(b)s and other accounts that are “income-taxable” to them in retirement. This often causes adverse consequences from the standpoint that social security benefits could then become income taxable or Medicare premiums could rise as these “entitlement” benefits are needs based and as an individual’s (or couple’s) income goes up, so indeed do the taxes on Social Security income and for Medicare premiums as well.    

Feel free to contact me for an individual analysis of how a Roth IRA could benefit you PRIOR to hitting the submit button for your 2019 Tax Return. I look forward to hearing from you. 

Most Sincerely,

News of the recent tax law changes have been in the press frequently over recent months. But, unless you have taken the time to evaluate the nuts and bolts of the new tax law, you may not be benefiting from your charitable contributions as much as you could be.

Charitable giving is an American tradition. According to “Giving USA 2016, The Annual Report on Philanthropy for the Year 2015,” Americans give well over $300 billion to charities annually, the majority of which is donated by individuals. Americans are not only generous with monetary gifts, but also with gifts of time and talent.

To make the most of your monetary gifts, I wanted to offer some suggestions for you to consider as you look at opportunities for year-end giving to the charities you support. These are suggestions that should be thought through with your trusted tax accountant or other qualified financial professional. The information contained in this article is not intended to be tax advice but merely ideas for you to consider as you prepare your year-end tax strategies.

Writing a check from your checkbook is one of the most common ways to donate to charity. However, if you are over 70-1/2, you may want to read on to see how a Qualified Charitable Distribution may help you at tax time.

Due to the increase in the standard deduction as a result of the recent tax law changes, donations you make to qualified charities may not benefit you in the way they used to. For example, for individuals 65 and older, the standard deduction has increased to $13,600 and $26,600 for couples age 65 and older. For more information on your standard deduction based on age and income, you can check out the IRS website at IRS.gov or ask your tax professional.

If your itemized deductions are less than your standard deduction, it usually does not make sense to itemize. Therefore, contributions to a charity made in the manner you used to make them may not impact your tax liability as they have in the past.
If you are age 70-1/2 or older, you are obviously are aware that you need to take a Required Minimum Distribution (RMD) from your IRA or other qualified retirement account. There is a provision in the tax code allowing for a Qualified Charitable Distribution (QCD) to go directly to a charity without passing through your hands (i.e., having you take constructive receipt of the proceeds from your RMD). How does this benefit you?

If you plan to donate money to one or a number of charities before year-end, you can tell your IRA administrator, as part or all of your RMD, you would like to send a specified dollar amount to a specified charity(s). This will save you having to include that portion of your RMD as income on your income tax return. As a result, your AGI (adjusted gross income) will be lower than it would be otherwise. AGI impacts the amount of money you would owe on a tax return. Also, depending on your tax bracket, AGI could impact how much tax you pay on Social Security benefits and what you pay for Medicare premiums.

So, if you are age 70-1/2 or older and have not taken all of your RMD yet for this year, you may want to consider a QCD (Qualified Charitable Distribution) to Give Smart and Receive Tax Benefits While Doing Good!

Feel free to contact me for more information on how to take a QCD (Qualified Charitable Distribution) from your RMD (Required Minimum Distribution) and create a win-win for you and a qualified charity of your choice. We are also happy to provide other ideas for tax-efficient charitable giving that were not included in this article.

Happy year-end tax planning!

Most Sincerely,