January 28, 2013

One Benefit for Achieving Age 70 1/2 or older

By Richard J. Schillig, CLU, ChFC, LUTCF
Independent Insurance and Financial Advisor

Is there a benefit to aging? The American Taxpayer Relief Act of 2012 is telling us there is a huge benefit to hitting the golden age of
70 1/2, especially if we hold qualified retirement accounts, such as IRA, 401K, TSA plans and others. If you have achieved this age milestone, you are well aware of this term – RMD (Required Minimum Distributions). Recall Uncle Sam has allowed us to participate in these qualified retirement plans and enjoy income tax benefits over the years. At age 70 1/2, Uncle Sam says it’s time to pay the piper and strictly enforces withdraws to satisfy Required Minimum Distributions. Uncle Sam wants to collect taxes on the deferral this money has enjoyed over the years AND recover some of the income tax deduction that may have been available. Consequently, RMDs are strictly enforced. Failure to comply with RMDs results in substantial tax penalties.

Often holders of qualified retirement plans say –“Hey, wait a minute, I don’t want to take that withdraw now. I prefer to let this money stay in the account to be reserved as an emergency fund for later in life.” Uncle Sam says NO, NO – RMDs are required. Not only are RMDs required, but RMDs are also included in income and become fully taxable.

The new tax law – The American Taxpayer Relief Act of 2012 (ATRA) – enacted by congress in the last hour of 2012 to help avoid the infamous Fiscal Cliff, includes two provisions that may be important for retirement plan holders, who are 70 1/2 plus years of age and subject to the RMD requirement. The first provision states the RMD is satisfied when paid directly from the retirement account to a qualifying charity (Qualified Charitable Distributions or QCD) AND secondly the RMD is NOT included in income.

It was the Pension Protection Act of 2006 that first allowed taxpayers age 70? or older, to exclude from gross income distributions from their retirement accounts of up to $100,000 when paid directly to a qualified charity. The law was originally scheduled to expire in 2007, but was extended through 2011 by subsequent legislation. This provision in the Pension Protections act is now extended yet again retroactively to 2012 and through 2013 by ATRA.

Keep in mind to take advantage of this special provision of the American Taxpayer Relief Act of 2012, you must be 70 ? or older to make QCD. You direct your IRA trustee to make a distribution directly from your IRA (other than SEP and SIMPLE IRAs) to a qualified charity. The distribution must be one that would otherwise be taxable to you. This distribution accomplished two objectives. It satisfies the RMD requirement, AND the distribution is not taxable to you. The distribution is not added to income on your tax return. What a benefit!! Remember only at age
70 ? or older. There is a benefit to aging.

Higher taxes are a concern for everyone. Taxes reduce income. There are alternatives to paying higher taxes. Our workshop “Discover Alternatives,” reviews this Retirement Provision of the American Taxpayer Relief Act of 2012 along with other strategies. I encourage you to review our ad below and call for a reservation to our “DISCOVER ALTERNATIVES” workshop.

Spring is coming!