With less than a month left in the year, time is running out to make adjustments to your IRAs that count towards this tax year.
Here is a short checklist of IRA actions to consider before year-end, but please note that this list is by no means comprehensive. We would strongly recommend reaching out to a financial advisor between now and the end of the year to make sure you’re in good shape going into the New Year.
- Fully Fund Your IRAs and Retirement Plans – just about any person who makes an income and is under the age of 70 ½ is eligible to contribute to an IRA. Whether or not it is tax deductible depends on factors like income, but the money in an IRA grows tax-deferred no matter what. The limits for total contributions to all IRAs and Roth IRAs for 2016 and 2017 are $5,500, or $6,500 if you are over the age of 50. One feature that many investors miss is that you can contribute to a traditional or Roth IRA even if you participate in another retirement plan through your employer or business. However, you might not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work.1
- Required Minimum Distributions – If you turned 70 ½ in 2016 or are over that age, you are required by the IRS to take distributions from your IRAs, known as Required Minimum Distributions. There is more than one way to take your distribution – you can pull cash out of your IRAs, transfer stock or other securities, or perhaps some combination of the two. For those investors who want to stay invested and do not necessarily need the additional income, you could explore transferring shares of securities from your IRA to a brokerage account and have that count towards your RMD. To note: Not taking your full RMD can be a costly mistake – a 50% excise tax is applied to the RMD amount not taken that should have been. You should discuss your RMD options at length with your financial advisor.
- Beneficiary Designations – the end of the year is a good time to check your beneficiary designations on your IRAs and insurance policies. The key thing to remember is that IRAs do not pass through probate, so if your will says something different than your IRA beneficiary forms, the beneficiary designation will prevail. It’s important therefore to keep these designations updated.
- Charitable Distributions – in December 2015, Congress made qualified charitable distributions (QCDs) a permanent feature of IRAs. QCDs are tax-free IRA distributions of up to $100,000 per year, and they can be made from IRAs, Roth IRAs, and inactive SIMPLE and SEP IRAs belonging to account owners or beneficiaries that are 70 ½ and older. For a list of qualified charities, you can visit the IRS website and run a quick and easy search: https://www.irs.gov/charities-non-profits/exempt-organizations-select-check.
WrapManager Can Help with Your Year-End Needs
As we mentioned before, the four items above are only a snapshot of the many actions to consider taking before year-end. There are also Roth IRA conversions, backdoor Roth IRAs, rollovers, IRAs for spouses and children, and so on goes the list. We think it is important and it makes sense to talk with a financial advisor before the year ends, to make sure all of the boxes are checked and that you are poised to start the New Year on track to meet your long-term investment and retirement goals.
WrapManager is here to help, and one of our Wealth Managers can work with you one on one to answer your questions and take action. Start a conversation today by emailing us at wealth@wrapmanager.com or calling 1-800-541-7774.
Sources:
1. IRS: Retirement Topics - IRA Contribution Limits
2. Lord Abbett
