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1 ED SLOTT S IRA ADVISOR 2017 Ed Slott, CPA February 2017 Tax & Estate Planning For Your Retirement Savings 10 Things Every Advisor Must Know When a Spouse Inherits an IRA Statistics may be hard to find but it s a good bet that a very large percentage of IRA owners name their spouse as their IRA beneficiary. As a result, advisors see spouses inheriting IRAs on a regular basis. This makes knowing the rules essential. A wrong move could be costly for your clients. Here are ten things every advisor must know when a spouse inherits an IRA. 1. How to Ensure All Options for a Spouse Beneficiary Spouses have options not available to other beneficiaries. The first critical step for ensuring those options is for the spouse to be named as the beneficiary on the IRA s beneficiary designation form. If an IRA owner names his estate as the beneficiary of his IRA and his spouse receives the IRA funds under his will, the estate and not the spouse would be the beneficiary of the IRA. This would mean the spouse would not have the special options available only for spouse beneficiaries. Spouses have options not available to other beneficiaries. There have been many private letter rulings (PLRs) over the years where a trust or an estate was named as the IRA beneficiary and surviving spouses have gone to the IRS to request the ability to do a spousal rollover. While the IRS has allowed such requests when the spouse has complete control over the trust or estate and its distributions, relief comes at a high price. All of this can be avoided if the spouse is simply named on the beneficiary designation form. To have all the options available, the spouse must also be the sole beneficiary. What does sole beneficiary mean? Many married couples will name each other as their sole beneficiary on their respective IRA beneficiary designation forms. In those cases, the sole spouse requirement is already met. Sometimes, however, a spouse will be named as one of several beneficiaries. If the right moves are taken after death, even if a spouse has been named This is your last chance to sign up for our 2-Day IRA workshop in San Diego this February. REGISTER NOW! Can t make it? Learn more about our eseminar Series. VISIT IRAHELP.COM OR CALL FOR MORE INFORMATION WHAT S INSIDE? 10 Things Every Advisor Must Know When a Spouse Inherits an IRA 1. How to Ensure All Options for a Spouse Beneficiary 2. Strategies to Consider 3. Spousal Rollover 4. Watch out for a Default Spousal Rollover 5. When an Inherited IRA Makes Sense 6. Special Rules for Spousal Beneficiaries of Inherited IRAs 7. Spousal Rollovers Are Irrevocable 8. Never Too Late for a Spousal Rollover 9. Titling Matters 10. Remember the RMD - Pages 1-3 The Missed RMD for a Non-Spouse Beneficiary Designated Beneficiary Stretch Payout 5-Year Payout Non-Designated Beneficiary Missed RMDs After the First Year s Distribution Reporting Missed Distributions IRS Information Letter Beneficiary Forms -Pages 3-5 Guest IRA Expert Joe Clark, CFP, RFC Financial Enhancement Group Lafayette, IN Helping Clients Get More Bang for Their Charitable Bucks Pages 6-8 To Order Call: (800) ED SLOTT S IRA ADVISOR February

2 along with others as a beneficiary, the spouse can be treated as a sole spouse beneficiary. The other beneficiaries must either cash out their shares or the IRA must be timely split into separate accounts. The deadline to timely cash out is September 30 of the year after the year of death of the account owner. The deadline for separate accounting is December 31 of the year after the year of death. 2. Strategies to Consider What are the special options available to a spouse beneficiary? Well, there are two strategies for advisors to carefully consider. A spouse beneficiary can keep the IRA as an inherited IRA or do a spousal rollover. Many clients will benefit from a spousal rollover... but not all. Some are better off sticking with a beneficiary IRA, at least for a while. Don t jump the gun with a spousal rollover until you are sure that is the right option for the client. This decision makes a big difference in determining when required minimum distributions (RMDs) begin, how they are calculated, and whether the 10% early distribution penalty applies. 3. Spousal Rollover A spousal rollover is when the surviving spouse moves a deceased spouse s retirement account into their own IRA. The term spousal rollover is a little misleading. A spousal rollover can be done by a 60-day rollover, a transfer, or by the surviving spouse electing to treat the IRA as their own. After a spousal rollover, the funds in the surviving spouse s IRA are treated as though they were always in the surviving spouse s IRA. In other words, the spouse is no longer treated as a beneficiary. For many spouse beneficiaries, the spousal rollover will be a good strategy. It can allow the inherited IRAs to be consolidated with other IRAs that the spouse beneficiary may have. For many, it will result in smaller RMDs. This is because RMDs from an inherited IRA are calculated based on a single life expectancy while RMDs from the spouse s own IRA are calculated using a joint life expectancy. For some clients, the spousal rollover will even allow RMDs to be delayed for years. Example: Doug, age 65, inherited an IRA from his wife Debbie who was age 75 when she died. If Doug does a spousal rollover of the inherited IRA, he can delay RMDs until the year he turns age 70½. 4. Watch out for a Default Spousal Rollover You might think of a spousal rollover as a strategy that is affirmatively elected by the surviving spouse. In many cases this is true. However, sometimes the IRA can A spousal rollover can be done by a 60-day rollover, a transfer, or by electing to treat the IRA as their own. become the surviving spouse s own IRA by default. One common way this could occur is if a surviving spouse fails to take an RMD from an inherited IRA. When this happens, the inherited IRA becomes the spouse s own IRA by default. Another less common way this can happen is if the spouse makes a contribution to the inherited IRA. 5. When an Inherited IRA Makes Sense For some clients keeping the funds in an inherited IRA will be a good planning strategy. Why? Well, distributions from inherited IRAs are never subject to the 10% early distribution penalty. If the spouse beneficiary is under age 59½ and wants to access the IRA funds, staying with an inherited IRA will make that possible. If on the other hand, a younger spouse beneficiary does a spousal rollover, the account is no longer an inherited IRA and distributions will be subject to the 10% early distribution penalty. Example: Larry, age 52, inherited an IRA from his wife, Louisa. Louisa died at age 50. If Larry keeps the inherited IRA, he can take penalty-free distributions. If Larry does a spousal rollover, the withdrawals from his IRA will be early distributions subject to the 10% penalty. 6. Special Rules for Spousal Beneficiaries of Inherited IRAs When a surviving spouse chooses to keep an inherited IRA, they are not subject to RMDs until the later of December 31 of the year following the year of death or December 31 of the year their deceased spouse would have been 70½. This allows the spouse beneficiary of an IRA owner who died at a young age to potentially delay RMDs for decades. This can be a good planning strategy because while no RMDs are required, if the spouse needs the money, they can take distributions from the inherited IRA without the early distribution penalty applying. Example: Ben died at age 30. His wife, Allie, age 28, is his beneficiary. If Allie keeps the funds in an inherited IRA she will not need to take RMDs for forty years. That would be the year that Ben would have been age 70½. Allie can take distributions at any time without the 10% early distribution penalty applying. If Allie does a spousal rollover, she will be subject to the 10% penalty on any distribution she takes from her IRA. Spouse beneficiaries also have the advantage of being able to recalculate their life expectancy. This means that spouse beneficiaries should look at the Single Life Expectancy Table each year to determine their factor. Non-spouse beneficiaries are never allowed to recalculate their life expectancy. This may seem like an obscure rule but it generally results in smaller RMDs for spouse beneficiaries. 2 ED SLOTT S IRA ADVISOR February 2017 To Order Call: (800)

3 7. Spousal Rollovers Are Irrevocable There is no going back with a spousal rollover. This is an irrevocable decision. Once the inherited funds have been rolled or transferred into a surviving spouse s own IRA by affirmative action or even by default, there is no magic undo button that can be pressed. The IRS can t help because it has no authority to undo this transaction. 8. Never Too Late for a Spousal Rollover On the other hand, the decision to stick with an inherited IRA is NOT irrevocable. A spouse beneficiary can elect a spousal rollover at any time. There is no deadline. It may make sense for some clients to keep the IRA as an inherited IRA for a very long time and then years later do a spousal rollover. A client may want to keep the funds in an inherited IRA when they are under age 59½ and then do a spousal rollover when the early distribution penalty is no longer an issue. A spouse beneficiary through oversight or bad advice may have simply kept an inherited IRA. Even years later it is not too late to do a spousal rollover. Example: Five years ago, Jane, age 60, inherited her husband Jason s IRA. Jason died at age 72. Jane has been taking RMDs from the inherited IRA for five years. She can still do a spousal rollover at any time. By doing so, she can delay RMDs on the funds until she reaches the year she turns age 70½. 9. Titling Matters The titling on the account is important. Usually when the IRA custodian is informed of the death of the IRA owner, the custodian will change the titling on the IRA. The account will be retitled as a beneficiary IRA. For example, the account would be titled Martin Malloy (deceased 3/12/2016) IRA FBO Mary Malloy. If Mary as the sole spouse beneficiary decides to do a spousal rollover, the IRA will be titled in her name alone. The account will no longer be a beneficiary IRA. This may seem like a minor detail but the titling will be used on all the required reporting to the IRS from the custodian and will dictate how IRS will treat the account for tax purposes. 10. Remember the RMD If a spouse inherits an IRA from a spouse who died after their required beginning date (April 1 of the year following the year they reach age 70½), the inheriting spouse must take the RMD for the year of death if their deceased spouse had not already taken it. The RMD can be taken from the inherited IRA, or if the spouse beneficiary elects to do a spousal rollover by transferring the funds, the RMD can be taken from the spouse s own IRA. The IRS does not care as long as it comes out during the year. If the client inherits a Roth IRA or an IRA from a spouse who has not reached their required beginning date, no RMD is required for the year of death. An RMD can be transferred to another IRA, but it cannot be rolled over in a 60-day rollover. When a surviving spouse receives a check payable to them personally, they must keep the RMD amount and can only roll over the remaining balance of the distribution. A 60-day rollover of the RMD amount results in an excess contribution in the receiving IRA. The Missed RMD for a Non-Spouse Beneficiary Here is a shocking concept. Non-spouse beneficiaries do NOT automatically get a stretch IRA. A non-spouse beneficiary who is able to stretch distributions must take their first required minimum distribution (RMD) in the year after the death of the IRA owner. What happens when a non-spouse beneficiary misses their first, and perhaps several, required minimum distributions on their inherited IRA? There are several possible outcomes depending on how they inherited the IRA and the policies of the IRA custodian holding the inherited IRA. The first thing to determine is exactly how the beneficiary inherited the IRA. A beneficiary will almost always say I inherited an IRA. The question to ask is whether they were the named beneficiary on the beneficiary form, which makes them a designated beneficiary, or if they inherited the IRA through an estate which makes them a non-designated beneficiary. The rules are very different for these two types of beneficiaries. If the beneficiary form defaults to a living, breathing beneficiary such as a spouse or children, then they are also designated beneficiaries. A beneficiary form that defaults to the estate leaves the IRA with a non-designated beneficiary. Note: These rules are for non-spouse beneficiaries only. Spouse beneficiaries have different rules. Designated Beneficiary Let s assume that we have a designated non-spouse beneficiary. The general rule for inherited IRAs is that designated beneficiaries, those that were named on the beneficiary form, can stretch distributions over their lifetimes. However, the IRA custodian is not required to offer this option to all beneficiaries. So, the next thing that has to be determined is whether or not the IRA agreement defaults to a stretch option or to the five-year To Order Call: (800) ED SLOTT S IRA ADVISOR February

4 payout rule. The IRA custodian should be able to answer this question. If they cannot, then ask them for a copy of the IRA agreement. This is the multi-page document with all the small print. In the section under distributions to beneficiaries you should be able to find the answer. Stretch Payout When the IRA agreement defaults to a stretch payout for non-spouse designated beneficiaries, then the beneficiary who has missed his first RMD and/or subsequent RMDs can make up the missed distributions and continue with stretch distributions going forward. The beneficiary s life expectancy factor is determined based on the age he turns in the year after the IRA owner s death. That age is looked up on the Single Life Expectancy Table to get the beginning factor. This factor will be reduced by one for each subsequent year s RMD. The RMD is always based on the yearend account balance for the year prior to the year of the distribution. For example, an RMD for 2017 is always based on the 12/31/16 IRA balance. This balance is only adjusted for funds that are in transit at year end they have left one account but have not yet been received by the new account, for Roth IRA recharacterizations, or for excess QLAC premium adjustments. Generally, a beneficiary is not doing a Roth recharacterization or an excess QLAC adjustment, but they may be doing direct transfers at year end. The balance is not adjusted for the amounts of any missed RMDs. The actual calculation is simple. You take the appropriate year-end account balance and divide it by the applicable life expectancy factor. 5-Year Payout A non-designated beneficiary, one who inherits through the estate, will have only limited distribution options. This is a drastic payout option, but unfortunately many non-spouse designated beneficiaries who miss their first distribution will find themselves with this default option. The mechanics are simple. There is no RMD for any given year except the fifth year. The IRA account must be emptied by the end of the fifth year after the year of death. The RMD for the last year is the entire account balance. The entire IRA account balance must be distributed and taxed within five years. Everyone should be checking their IRA beneficiary forms to be sure this doesn t happen to their beneficiaries. Example: Betty is a non-spouse designated beneficiary who, like Pam above, inherited her IRA in 2014 and has not taken RMDs for 2015 and Unfortunately for Betty, the custodian holding her inherited IRA defaults to the 5-year payout rule. Betty has until 12/31/19 to empty her inherited IRA. She has no required RMDs for any year except the fifth year. She can take as much or as little as she wants out of the inherited IRA for the next two years, and she will need to empty the account in She will owe income tax on the entire inherited IRA balance in the next three years. Non-Designated Beneficiary A non-designated beneficiary, one who inherits through the estate, will have only limited distribution options. The RMD calculation will depend on whether the IRA owner died before or after his required beginning date (RBD). The RBD is April 1 of the year after the IRA owner turns age 70½. Example: Pam is a non-spouse designated beneficiary. She inherited her IRA in 2014 and has not taken RMDs for 2015 and Pam has just been informed that she must take RMDs from her inherited IRA beginning in the year after the death of the IRA owner. She has two missed RMDs that she must make up. Pam will find her life expectancy factor by going to the Single Life Expectancy Table (you may view this chart in the Resources section of IRAhelp.com) and looking up the age she turned in 2015, the year of her first RMD. She would have been 60 that year so her factor is Pam will need the yearend account balances of the inherited IRA for 2014 and Her 2015 RMD is calculated by dividing her 2014 year-end account balance by her factor of The 2016 RMD is calculated by dividing her 2015 year-end account balance by her new factor of 24.2 (25.2 1). Pam can continue to take RMDs for the next 23 years. This allows her to defer income taxes over 23 years and also allows the IRA to continue to grow for many years. Example: Craig dies in the year he would be age 75. He has died after his RBD (April 1 of the year after he turned 70½). Mary dies in the year she would be age 70½. She has died before her RBD (April 1 of the year after she turned 70½). Death After the RBD Craig s non-designated beneficiaries, who have inherited through his estate since his beneficiary form could not be found, will be able to stretch distributions from the inherited IRA, but they will have to use Craig s remaining life expectancy. They cannot use their own life expectancies. Craig attained age 75 in the year he died. The life expectancy for a 75 year old from the Single Life Expectancy Table is That factor gets reduced by one for each subsequent year so Craig s beneficiaries will start their RMDs with a factor of ED SLOTT S IRA ADVISOR February 2017 To Order Call: (800)

5 Death Before the RBD Mary s non-designated beneficiaries do not fare as well. Mary died before her RBD so her beneficiaries must use the 5-year rule. There are no RMDs each year, but the entire account balance must be paid out by the end of the fifth year after Mary s death as explained above. Missed RMDs After the First Year s Distribution Once the non-spouse beneficiary has taken their first RMD, they are generally deemed to have elected to take stretch distributions and a default option of the five-year rule will no longer apply. Note: There are some IRA agreements that will allow only a five-year distribution and those beneficiaries will be locked into that option no matter what they do in year one. A beneficiary must now take at least the required minimum amount each year by year end. Any missed distributions can be made up at a later date, but they are subject to a penalty of 50% of the amount not taken. Distributions from an IRA are always includable in income for the year in which the distribution is made. Reporting Missed Distributions Office in response to requests for general information by taxpayers, by congress-persons on behalf of constituents, or by congress-persons on their own behalf. In this letter, requested by or on behalf of a taxpayer, IRS addressed the concerns about the consequences of missing the first RMD from an inherited Roth IRA. As a reminder, while there are no RMDs from a Roth IRA during the account owner s lifetime, there are RMDs when non-spouse beneficiaries inherit a Roth IRA. Because the Roth IRA owner never has an RMD, they never reach their required beginning date. A designated beneficiary will have the options of life expectancy (stretch) distributions or the 5-year rule as described above. A non-designated beneficiary will only qualify for a 5-year payout because the Roth IRA owner has died before his RBD. The IRS letter states: The determination of which distribution period applies is made in accordance with these rules, and is not based on whether distributions in fact begin timely under the applicable rule. There is a penalty of 50% of the amount of an RMD that is not taken for the year in which it is due. This penalty must be reported to IRS on Form It can be filed with an individual s tax return or as a stand-alone return since it has its own signature line. IRS has the authority to waive this penalty for good cause after the missed RMD has been taken. The method for doing this is included in the instructions for the form. A note must be included with the return explaining the circumstances of the missed distribution, letting IRS know that you found the mistake and have corrected it, and that it will not happen again. It is recommended that the form be filed any time there is a missed RMD. When the form is not filed, the statute of limitations does not start to run. If IRS finds the error at a later date, then the 50% penalty is owed, plus interest, failure to file penalties can be assessed, plus interest, and accuracy related penalties can be assessed, plus interest. It is clear to see that the penalties and interest can total up to a substantial amount. IRS Information Letter Released by IRS on 9/30/2016 From the IRS website: An information letter provides general statements of well-defined law without applying them to a specific set of facts. They are furnished by the IRS National Mary died before her RBD so her beneficiaries must use the 5-year rule for distributing the inherited IRA. This is a great confirmation of the distribution rules as they have been used since Beneficiaries who would qualify to use stretch distributions from their inherited IRAs do not lose that ability if they happen to miss their first RMD. Beneficiary Forms It is clear that the beneficiary form is a crucial piece of an IRA owner s estate plan. When an IRA owner wants his or her beneficiaries to be able to stretch distributions from an inherited IRA over their own lifetime, the IRA owner needs to have a completed beneficiary form on file with the IRA custodian that clearly names his or her beneficiaries and the share that they are to inherit. Unfortunately, we cannot count on an IRA custodian to safely keep that copy of the beneficiary form that was so carefully completed last week, last month, last year, or several years ago. IRA owners need to check with their custodians periodically to make sure that the form is still on file. If the custodian cannot find it, a new beneficiary form needs to be completed. Keep a copy of the form before it is sent to the custodian and follow-up in a month or two to be sure that they have received it and their records reflect the correct beneficiaries. It is best to get that confirmation in writing. It is also a good idea to let the beneficiaries know where they can find the copies of the beneficiary forms, just in case they are needed after the IRA owner s death. To Order Call: (800) ED SLOTT S IRA ADVISOR February

6 Guest IRA Expert Joe Clark, CFP, RFC Financial Enhancement Group Lafayette, IN Helping Clients Get More Bang for Their Charitable Bucks Many people become more interested in philanthropy as they near and go through retirement. By then, the expenses of raising a family may be behind them, their career goals have been realized, and they d like to do something meaningful with the wealth they ve accumulated. For such clients, the tax code may not be particularly helpful. If their income has dropped in retirement, moving them into a lower tax bracket, the value of deducting charitable contributions is reduced. In addition, taking money from their traditional IRAs and other retirement accounts to make donations will trigger taxable income. Qualified charitable distributions (QCDs) from IRAs may provide some relief, but QCDs aren t allowed until age 70½ (you must actually be 70½). With a QCD, IRA owners forgo a tax deduction for the charitable contribution, but they also satisfy minimum distribution requirements without picking up taxable income for the withdrawal. The tradeoff may offer several net-tax benefits for certain clients, such as holding down reported adjusted gross income (AGI). RMDs are Taxable The example of Jeff and Jackie Smith can illustrate one potential problem. Both university educators, they have done most of their investing in their 403(b) plans and accumulated substantial amounts. Now age 67 (Jeff) and 64 (Jackie), they are ready to retire. Acting without input from an advisor, the Smiths have begun to collect Social Security benefits, receiving a combined $45,000 a year. Once they re retired, they estimate a need for $30,000 per year from their rollover IRAs to maintain their lifestyle and another $25,000 for the charitable gifts they d like to make. At first glance, withdrawing $25,000 from their IRA accounts and donating $25,000 to charity should be a With a QCD, IRA owners forgo a tax deduction for the charitable contribution, without picking up taxable income. wash, after tax. In reality, though, the income the Smiths recognize from the IRA distributions raise the tax on their Social Security benefits, so that the maximum 85% of those benefits are now taxable. That does not make them happy. What s more, when Jeff reaches age 70½, and required minimum distributions (RMDs) begin, his IRA account is projected to have nearly $1,800,000. If so, he will have to withdraw more than $60,000 a year, whether he needs that money or not. Jackie will be in a similar situation three years later, when she starts RMDs. Altogether, all of that RMD income will push up the Smiths AGI, creating an enormous tax obligation. Maximizing Charitable Giving Now that the Smiths are working with an advisor, their best plan might be to take more money from their IRAs each year, in addition to the $55,000 they wish to withdraw, to reach the top of their current tax bracket. The additional IRA withdrawals might be converted to Roth IRAs at an additional tax cost, but this will reduce future RMDs for the Smiths and create a source of future taxfree cash flow. Once the Smiths reach age 70½, they can do $100,000 worth of QCD transactions per year ($200,000 when both Jackie and Jeff are eligible). Eventually, that will trim their IRAs and reduce their highlytaxed RMDs. The catch is that the Smiths only want to donate $25,000 per year, not $100,000 or $200,000. Deferred gifting usually is available through donor advised funds, but QCDs to donor advised funds are not permitted. The workaround here is to send QCDs to a restricted fund. With such funds, the donor must specify which charity or charities will be supported, as well as the timing of future distributions, before the QCD is completed. A QCD to a restricted fund requires a written agreement between the donor and the charity or charities. Such an agreement may enable an IRA owner to remove money from the account now, untaxed, yet pledge philanthropic cash flow to designated recipients for years in the future. This solution might help, but it is not ideal. Good planning - perhaps taking more money from their retirement accounts earlier, instead of starting Social Security - might have given the Smiths a better retirement. More retirements are harmed by tax code provisions than by poor investment decisions. 6 ED SLOTT S IRA ADVISOR February 2017 To Order Call: (800)

7 Top-Bracket Tax Deductions For an example of how good planning can produce better results, consider Bill and Jean Johnson. Their income had been in the $125,000-$150,000 range for years, but then it jumped to more than $500,000, putting the Johnsons in the top 39.6% tax bracket. At that level, many of their itemized deductions have been phased out, under prevailing tax rules. The Johnsons were shocked at how much they effectively had to pay in tax, in this tax bracket. Going forward, the Johnsons expected their income to drop sharply when Bill retires. They likely would go back to the 25% tax bracket and might not be able to donate as much to charity as they had been giving, with much lower income. The solution, for the Johnsons, was to give $250,000 to a donor advised fund, each year, for two years before Bill retired. This was 50% of their AGI, the maximum that the Johnsons could deduct currently. These gifts took the Johnsons from the top bracket down to one that was much lower, reducing the amount sent to the IRS. Making these charitable contributions in the highest tax bracket provided the most beneficial philanthropic tax deduction. Even without current donations, the Johnsons still can make the charitable contributions they d like, using grants from their donor advised fund. Roger now has $400,000 in his IRA while Elise has $200,000 in hers. Once Roger reaches 70½, he can begin making those $100,000 annual donations via QCDs. After four years, Roger s IRA will be depleted, and he ll no longer face RMDs. From that point, Elise will begin to pay $100,000 from her IRA to charity with QCDs, emptying her IRA in two years. During those six years, the Browns no longer will write checks to charity, as their philanthropic intentions will be fulfilled by QCDs. Instead, the money normally gifted to charity will go into their investment accounts. Once both IRAs have been zeroed out, the Browns can tap their investment accounts for their charitable contributions. If there are losses, investments can be sold to realize valuable capital losses, and the cash proceeds from the sale can go to charity. On the other hand, if there have been gains in their investment accounts, the Browns can give the appreciated securities to their church and other charities. As long as the appreciated securities have been held longer than 12 months, the Browns will pay no tax on the capital gains and will get to take an itemized deduction for the full, fair market value of the donated assets, up to tax-code limits. Now that they are retired, the money in the donor advised fund can be doled out by the Johnsons for decades, $25,000 a year, to charities of their choosing. If they want to make additional donations, they ll be able to use QCDs from their IRAs after age 70½ and thus avoid boosting their taxable income. Meanwhile, without tax-deductible contributions, the mortgage-free Johnsons have few itemized deductions so they are taking the standard deduction on their tax returns. (The standard deduction might be dramatically increased in the future, under proposed tax changes.) Even without current donations, the Johnsons still can make the charitable contributions they d like, using grants from their donor advised fund. This plan has allowed Bill to leave work without concern over funding the couple s favored charities, once he retired. Maximizing QCDs Not every client will have multiple millions in a retirement fund or income over $500,000 a year. Those with smaller IRAs can also benefit from savvy planning for their donations. For example, Roger and Elise Brown are age 70 and 67 respectively. They have been giving over $100,000 per year to charity. Qualified charities can receive the donations of appreciated securities and sell those assets without owing income tax. Donors get a tax deduction, the charity gets an untaxed contribution, no one ever pays tax on the asset appreciation, and the only loser is the IRS. Joe Clark has been in the financial services industry for more than 25 years. He is the Managing Partner and Lead Advisor of The Financial Enhancement Group, LLC, an asset management and financial planning firm with four locations in Indiana that manages over $250 million. Joe is also a former Adjunct Assistant Professor at Purdue University, having taught the Capstone course for the Financial Counseling and Planning program for 7 years. He is a Charter Member of Ed Slott's Master Elite IRA Advisor Group sm and has appeared on various national and local media outlets. Joe writes a weekly column for The Herald Bulletin and is the host of a weekly radio show "Consider This" that airs on multiple stations throughout Central Indiana. Joe Clark can be reached at (800) or bigjoe@yourlifeafterwork.com. You may also visit his website, To Order Call: (800) ED SLOTT S IRA ADVISOR February

8 ED SLOTT S IRA Advisor Editor - in - Chief Ed Slott, CPA Contributing Writers Beverly DeVeny Jeffrey Levine Sarah Brenner Disclaimer and Warning to Readers: Ed Slott s IRA Advisor has been carefully researched to provide accurate and current data to financial advisors, taxpayers, and others who seek and use the information contained in this newsletter. Readers are cautioned, however, that this newsletter is not intended to provide tax, legal, accounting, financial, or professional advice. If such services are required, then readers are advised to seek the aid of competent professional advisors. This news letter contains timely information about complicated tax topics that may eventually be changed, outdated, or rendered incorrect by new legislation or official rulings. The editor, authors, and publisher shall not have liability or responsibility to any person or entity with respect to any loss or damage caused or alleged to be caused, directly or indirectly, by the information contained in this newsletter. Ed Slott s IRA Advisor is published monthly (12 issues a year) for $125 by: Ed Slott s IRA Advisor, Inc. 100 Merrick Road, Suite 200E Rockville Centre, NY support@irahelp.com ORDER ONLINE AT OR CALL All rights reserved ISSN X Ed Slott's IRA Advisor, Inc. 100 Merrick Road, Suite 200E Rockville Centre, NY No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means without the prior written permission of Ed Slott, CPA. Advisor Action Plan Determine which clients have substantial philanthropic intentions now and hope to make large charitable donations during retirement. Encourage these clients to make sizable donations when they are in high tax brackets. The best time may be when clients are near retirement, with reduced family obligations and ample earned income. Suggest that charitable contributions be made to a donor advised fund before age 70½. Clients may get a current tax deduction yet defer the actual gifts to charity. This plan allows donations to continue after retirement, to one or more chosen recipients, even if income has fallen. Urge clients who reach age 70½ to switch donations to qualified charitable distributions (QCDs) from IRAs, up to $100,000 per donor per year. QCDs satisfy required minimum distributions, and the advantages of holding down adjusted gross income will offset the loss of charitable tax deductions, in many cases. If clients want to take QCDs yet defer the actual gifts to charities, they won t be able to use donor advised funds. Advise such clients that QCDs instead may be made to restricted funds, along with a schedule for future donations to specified charities. If IRAs are zeroed out, clients can continue their tax-efficient charitable giving by donating appreciated stock. Join America s IRA Experts in San Diego Ed Slott and Company s 2-Day IRA Workshop is an educational experience that provides two full days of current, powerful IRA information. Here is why you should attend today: Learn cutting-edge IRA distribution strategies to help you outperform your competition Study 25 IRA rules you must know and how you can leverage them into NEW business ED SLOTT AND COMPANY S 2-DAY IRA WORKSHOP SAN DIEGO, CA FEBRUARY 17-18, 2017 Strategize 2017 Roth conversion planning tactics to move more client money from forever-taxed to never-taxed Earn CE credits Ask our technical experts any IRA questions or concerns you have REGISTER NOW! Web: info@irahelp.com Phone: ED SLOTT S IRA ADVISOR February 2017 To Order Call: (800)