This article applies to IRA owners who were age 70 ½ or older by 12/31/2019.
Tax law changes in 2017 and 2019 have resulted in numerous questions about required minimum distributions. In this article we will answer frequently asked questions and identify the actions you’ll need to take to satisfy your RMD requirements in 2020.
Both the 2017 Tax Cut and Jobs Act (TCJA) and the 2019 SECURE Act have implications for IRA owners and we will summarize these implications later in this article. First and foremost, we’ll address the basic decisions you’ll need to make this year to satisfy the RMD requirements. These decisions are as follows:
Tax Withholding: After consulting your tax advisor, decide how much (if any) you want withheld for state and federal taxes when you take your IRA distribution.
Charitable Gifts: Make decisions about charitable giving. In particular, decide if you will make a qualified charitable distribution (QCD) from your IRA in 2020.
Timing and Method: Decide when you would like to take your IRA distribution and in what form (lump sum, periodic distributions, etc.).
Below are some details to help you make the decisions listed above.
Regarding withholding, we will suggest that you use your IRA withholding to pay all of your state and federal tax obligations, thereby eliminating the need to make quarterly estimated tax payments. This is optional of course; you may decide to continue making quarterly estimated tax payments and to not withhold taxes from your IRA distribution. Please consult with your tax advisor regarding the amount to have withheld.
Regarding charitable gifts, the 2017 TCJA has generated many questions about charitable giving from IRAs. Because the Act doubled the amount of the standard deduction, many taxpayers will now take the standard deduction instead of itemizing deductions. When one takes the standard deduction, a charitable gift is no longer a deductible item. However, a similar tax benefit can be enjoyed when an eligible taxpayer makes a charitable gift from an IRA directly to a qualified charity. This is called a Qualified Charitable Deduction (QCD). If after consulting with your tax advisor you determine that 1) you will take the standard deduction and 2) you also wish to make a charitable gift, we highly recommend that you consider making the gift directly from your IRA in order to preserve this valuable tax benefit. Read more on this topic in Over Age 70 ½? Consider a QCD for Your IRA RMD.
Note: If you do plan to make QCD gifts this year, we request that you consider making these gifts as early as possible (preferably by November 1st), so we can assure that your gift will be completed before year end. Please plan to provide Bragg with the name and mailing address for the charities to which you plan to give and the amount of your desired gift.
Timing & Method
Regarding the timing of your distribution, we suggest that you take your IRA distribution early in order to avoid the year-end rush. Once you have made your decisions about tax withholding and about charitable gifting (QCD or not), we suggest you contact Bragg and we will help you complete your distribution. The exception to taking your distribution early would be in the event you are taking monthly distributions.
Finally, the 2019 SECURE Act was signed into law in December 2019 and includes significant changes related to IRA required minimum distributions as well as other changes that impact retirement savers. Read the details of the SECURE Act here. While the implications of the SECURE Act are significant, please know that if you own an IRA and were 70 ½ by 12/31/2019, you are still required to take a distribution from your IRA in 2020.
Please inform Bragg of your decisions regarding the three items listed above and we will help you take your distribution in compliance with current law.
We hope this information helpful. Please let us know if you have questions.
This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.