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Tax Considerations for the Working Individual Reviewing 2018 Returns – Qualified Plans

When you’re planning your 2019 tax strategy, you’ll find a review of your 2018 return a helpful tool in determining your potential tax responsibility for this year. Many tax issues are covered in consideration of family issues, income, and investments, but if you have qualified plans, there are just a few more loose ends to wrap up during your tax review.

This article is third in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

Here are some of the qualified plan issues you should consider:

 

 

Are You Contributing to a Traditional IRA?

If you’re actively contribution to a traditional IRA, bear in mind that the maximum contribution is $5,500 ($6,500 if you are above age 50). Consult Schedule 1, Line 32 for more information and ask your tax advisor for information about whether or not you can make any further deductible contributions.

 

Are You Contributing to a Roth IRA?

Similarly, Roth IRA contributions cap at $5,500 ($6,500 if you are above age 50) per year. However, unless you’re taking advantage of the Retirement Contribution Savings Credit, you will not report these contributions on Form 1040.

 

Do you Have an Inherited IRA?

If you have an inherited IRA (or multiple inherited IRAs), you need to ensure that you’re meeting your RMD for the year. Look to form 1040, Line 4a and 4b to see whether this has been satisfied and reported.

 

Are You Contributing to an HSA?

While you can deduct HSA contributions, you need to keep contribution caps in mind. For the individual, there is a $3,450 cap ($6,900 family). Additionally, if you contribute to your HSA through payroll, then you will find information about your lower wages on Form 1040, Line 1, as well as on your W-2 and paystubs.

 

Have You Made a Contribution to a Non-Deductible IRA?

If you have ever contributed to a non-deductible IRA, you will need to ensure that the cost basis is properly tracked. Look at Form 8606 to understand how your contribution should be accounted for.

 

Have You Taken a Non-Qualified Distributions from:

An IRA?

Early, non-qualified IRA distributions are penalized and you’ll see this when you file your taxes. To find a non-qualified early distribution, look at Form 1040, Line 4b. Then consult Form 5329 for penalty calculations and carry over to Schedule 4, Line 59.

 

A 529 Plan?

You will also use Form 5329 to calculate the penalty for an unqualified withdrawal from a 529 Plan, if applicable. Since a 529 Plan has very specific withdrawal requirements, you’ll want to work with a tax professional to understand whether any withdrawals you took were qualified or not.

 

Did You Convert a Traditional IRA to a Roth IRA?

If you converted an amount from a traditional IRA to a Roth IRA, you need to report this amount properly. Consult Form 8606 for more information about reporting the converted amount and that any non-deductible IRA contributions converted are treated as non-taxable.

 

Did You Rollover Funds from One Retirement Account to Another?

You may have moved funds from a 401(k) to an IRA or another account. If so, you want to treat these funds as a rollover and not a distribution, since a distribution may cause penalty and other unforeseen expenses. Form 1040, Line 4a should reflect the amount rolled over and Line 4b should be $0 if no distributions occurred.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the working individual, consult our resources on family and filing issues and reporting your investment income.

This article is third in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Tax Considerations for the Retiree – Qualified Plan Issues

Now that you’ve worked through your family and filing issues, as well as your investment income and other issues, it’s time to take a look at the last category for tax time consideration: qualified plan issues.

Qualified plans often play a large part in the retirees income equation, so it’s essential to properly account for distributions taken throughout the year. Additionally, each account type carries slightly different rules, so you want to stay on top of when you can begin distributions from one account or what your distribution requirements are for another.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

Here are some questions to ask as you approach your qualified plan issues this season.

Are You Above Age 70 ½:

  • With an Inherited IRA?

    Ensure that your RMD has been met and reported (Form 1040, Lines 4a and 4b).
  • And Have Completed a Qualified Charitable Distribution?

    Double check that this amount if properly accounted for and that the amount is excluded on Form 1040, Line 4b.

 

Did you Fail to Take the Required Minimum Distribution?

Your Required Minimum Distribution is the minimum amount of money that you should withdraw from your retirement account(s). If you failed to take the RMD, you will need to pay a penalty, which can be calculated on Form 5329 and carried over to Schedule 4, Line 59.

Have You Made a Non-Deductible IRA Contribution?

Look at Form 8606 for more information about your non-deductible IRA contribution. Then, ensure that the cost basis for this contribution is properly tracked.

Have You Taken a Non-Qualified Distribution from a 529 Account?

If you took a non-qualified distribution from a 529 account, you’ll need to pay the penalty on the withdrawal amount. File form 5329 to account for the penalty and then carry it over to Schedule 4, Line 59. Your tax professional can provide personalized guidance if you want to understand more about whether your 529 distribution(s) is qualified.

Did You Withdraw from a Non-Deductible IRA?

You can use Form 8606 to ensure that the taxable and non-taxable portions of your distribution were calculated correctly.

Did You Convert Funds from a Traditional IRA to a Roth IRA?

Conversion of funds from a traditional IRA to Roth IRA can impact your bottom line at tax time. Use Form 8606 to report the converted amount and to ensure that non-deductible IRA contributions were converted and treated as non-taxable. If you made any conversions of this type, you’ll want to enlist your tax professional in assisting you to calculate this properly.

Have You Rolled Retirement Funds from One Account Type to Another?

Similarly, if you’ve converted retirement funds from one account type to another (ex. Moving funds from a 401(k) to an IRA), you want to ensure that this is reported and calculated properly. Ensure that funds are treated as a rollover and not as a distribution by double checking that Form 1040, Line 4a displays the rollover amount. Meanwhile, Form 1040, Line 4b should show $0.

Did You Rollover Retirement Funds and Utilize NUA?

If yes, you will need to review Form 1040, Lines 4a and 4b to see that your IRA distributions are recorded and to ensure that the basis was taxed.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our posts on family and filings issues, as well as what to do about investment income.

This article is third in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

Tax Considerations for the Working Individual Reviewing 2018 Returns – Investments, Income, and Other Issues

Investments and income are typically the two biggest players in your tax plan. After all, these are likely to be your primary sources of personal revenue.

When it comes to planning your tax strategy, you need to consider a variety of factors related to your income and investments, as well as some various issues that are related to these categories. Here are the top considerations to make for income, investments, and other issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

Investment Income Issues

Depending on your specific investments, there are a few areas on your 2018 return to check and ensure whether you’re on the right path for your 2019 tax strategy.

 

Interest

Are your investments earning interest? (Review From 1040, Lines 2a and 2b) Did you receive any dividends? (1040, Lines 3a and 3b) If you answered “yes” to either of these questions, you need to reference Schedule B for more information about which accounts are generating interest and whether dividends earned are qualified or ordinary.

 

Income and Investments

If you’re self-employed and your income is greater than $200,000 ($250,000 married, filing jointly), you may be required to pay and additional Medicare tax at 0.9% (consult Form 8959). For all working individuals, if your income is greater than $200,000 ($250,000 MFJ), and you have high Net Investment Income (see Form 8960), your income may be subject to a Net Investment Income Tax at 3.8%.

 

 

Capital Gains

Remember, your capital gains and losses also count toward your income and make a difference at tax time. For capital gains distributions, consult Schedule D, Line 13; for losses look at Schedule D, Lines 6 and 14. Verify whether short- or long-term loss carryovers are properly accounted for.

 

Income Issues

While you’re probably already making notes of income changes from 2018 to 2019, here are some specifics to focus on during your review.

 

W-2 Employees

If you’re a W-2 employee, you’ll want to review your W-2 for any HSA and FSA contributions from both your employer and your pre-tax income. Additionally, you need to review your retirement plan contributions and employer matching.

 

Stock Options

If you are part of an employee stock option or have any other type of equity compensation, you will need to consult your 2018 return to see how this impacted your tax strategy during the last year. Look at your W-2 and Schedule D to learn more about how your get a better understanding of your tax responsibility for exercising or selling your option. If you filed an 83(b) election, ensure that you prepare one this year as well.

 

Other Issues

There are, of course, some odds and ends issues that are difficult to classify with other categories. However, when you’re filing your taxes, it’s important to account for all of your financial activities. Here are some additional issues you want to watch out for.

 

State-Specific Issues

You will want to take a look at your state return, in addition to your federal one, to look for specific issues unique to your locale. If you have recently moved or earned income in another state during the calendar year, consult a financial professional to learn about the tax laws that apply to your situation.

 

Real Estate

If you have real estate investments, consult Schedule E to see how to properly claim your rental income.

 

Student Loans

You may be able to claim interest paid from student loans if you paid any this year. Look at Schedule 1, Line 33 to see whether the deduction applies to your situation.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the working individual, consult our resources on family and filing issues.

This article is second in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Tax Considerations for the Retiree – Investment Income and Other Issues

Your income situation as a retiree is probably quite a bit different than it was when you were working. There may be multiple streams of income to account for, as well as other unique factors to consider from year to year.

Investment income is an essential item to cover here, since this is likely to represent a meaningful portion of your retirement income. There may also be some odds and ends that impact your tax strategy in other ways, so we’ll take a look at those too.

This article is second in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

When it comes to your investment income, here are the issues you want to consider:

 

Are You Reporting Investment Interest?

Investment interest should be reported on Form 1040, Lines 2a and 2b. You will also want to look at Schedule B to get a better idea of which accounts are generating interest and see how you reported them in 2018.

 

Did You Receive Dividends?

Dividends will also be reported on Form 1040, but on Lines 3a and 3b. Again, look at Schedule B to see whether the dividends are ordinary or qualified and how to proceed with reporting this income.

 

How Does Your MAGI Impact Your Net Investment Income?

If you have a MAGI above $200,000 ($250,000 MFJ), and significant investment income, you may be subject to an additional Net Investment Income Tax of 3.8% (Form 8960). Talk to your tax professional to learn more about whether this additional tax will affect your bottom line and to see whether there are strategies you can use to offset this liability.

 

 

Did You Have Capital Gains or Losses?

Look at Form 1040, Line 6 for reporting capital gains or losses. If you have Capital Gain Distributions, you’ll want to consult Schedule D, Line 13 for more information about reporting. For losses, look to Schedule D, Lines 6 and 14 to calculate your short- and long-term loss carryovers. Ensure that you account for losses carried over from previous tax returns.

 

Other Issues

Additionally, there are some tax issues that fall outside of the broader categories, but still need attention when you’re working on your tax strategy. These other issues include:

 

Medical Expenses

If you had large medical expenses during the year, you may be able to deduct a portion of the expenses from your tax responsibility. Look at Schedule A, Line 1 to understand more about your medical expenses and the deduction limit. You will also want to factor your Medicare Premiums and Long Term Care Premiums into your total medical expense figure.

 

State Taxes

As always, you will need to consider your individual state tax responsibility in addition to your federal taxes. Your state tax return from 2018 should contain information to help you get a better idea of what your state tax liability will be for this year. Your tax professional can help you to determine how state laws impact your tax strategy.

 

Real Estate

If you own rental properties, you may be able to claim deductions. Consult Schedule E for more details on how to claim your rental real estate deductions.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our post on family and filings issues.

This article is second in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Tax Considerations for the Working Individual Reviewing a 2018 Return – Family and Filing

With the end of the year in sight, it’s time to take a look at your 2019 tax strategy. One of the ways that you can prepare for the upcoming tax season is to look back at your 2018 return to see how your tax strategy worked out the last time you filed.

This article is first in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

Here are some issues to keep in mind when reviewing your 2018 return:

 

What Deduction did You Claim?

If you claimed the standard deduction of $12,000 ($24,000 married), you may consider bunching charitable donations into one year. You may also decide to accelerate or prepay certain future expenses, like medical expenses or property tax. (Consult Form 1040, Line 9)

 

Are You Married?

Married couples have certain tax considerations that they should review yearly in order to make the most of their tax strategies. If any of the following apply:

  • You and your spouse have a large disparity in incomes
  • You have a number of large itemized deductions
  • You or your spouse have income-based student loans

 

You may consider filing separately to offset your tax liability. Run the numbers for both married filing jointly and married filing separately to see how your estimated tax liability is impacted.

 

Have You Been Divorced or Lost Your Spouse?

If it’s been a personally traumatic year, one of the last things on your mind might be your tax status. But if you have lost a spouse or been through a divorce, you need to review your filing status to ensure you’re in the correct category. (Review the top of Form 1040)

 

Do You Have Dependents?

If you have children and make less than $200,000 ($400,000 for couples), don’t forget to take your child tax credit. (See Form 1040, Line 12)

  • Are your children under age 13? Look to see whether you can claim additional deductions for child care. (Consult Form 1040, Line 12, and Schedule 3, Line 49)
  • Do you have dependent children in college? Are you in college?
    • If your income is below $58,000 ($116,000 married), check to see if you claimed the Lifetime Learning Credit in 2018. (Look at Schedule 3, Line 50)
    • If your income is below $90,000 ($180,000 married), check to see if you have previously claimed the refundable portion of the American Opportunity Tax Credit (Form 1040, Lines 17c)
  • Do you have non-child dependents that you can claim? In some cases, you may be able to claim a parent or another relative as a dependent and receive a Child and Dependent Care Tax Credit, as well as relevant medical expenses that you spent on that dependent.

 

 

Was There any AMT (Alternative Minimum Tax)?

If you had AMT in 2018, consider possible strategies to reduce it. These might include minimizing capital gains or maxing out retirement contributions to lower your income. You will also want to see whether you received a credit from paying AMT in 2017. (Consult forms 6251 and 8801)

 

Did You Have an Unexpected Outcome from Your Filing?

When you filed in 2018, did you need to pay more taxes than you expected? (Consult Form 1040, Lin 22) Or on the flip side, did you end up with a bigger return than you anticipated? (See Form 1040, Line 19) If you ended up with an unexpected outcome from your 2018 filing, you may want to look into whether this was an anomaly. Compare information from the past few years to see what might have changed.

 

Did You Withhold Enough in 2018?

If you failed to withhold enough taxes, you may have to pay a penalty. (See Form 1040, Line 23 and Form 2210). In the past, you would be responsible for 90% of your current tax liability, but the IRS changed this to 80% in 2018.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the working individual, stay tuned for information about reporting your investment income and other issues.

This article is first in a series on Tax Considerations for the Working Individual. Read of the series here:

  1. Tax Considerations for the Working Individual – Family and Filing Issues
  2. Tax Considerations for the Working Individual – Investment Income and Other Issues
  3. Tax Considerations for the Working Individual – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Tax Considerations for the Retiree – Family and Filing Issues

As tax season approaches, it’s time to take a look at your 2019 tax strategy. Thankfully, if you filed taxes in 2018, you can use your 2018 return as a sort of cheat sheet to help you get a better idea of what you may be responsible for this time around.

Whether you’re dealing with a fixed income, investment payouts, or any other unique financial situations, your status as a retiree means you have some different considerations to make than you did as a working individual. To start, you will want to take a look at your family and filing issues.

This article is first in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

Did You Take the Standard Deduction?

Did you claim the standard deduction of $12,000 ($24,000 married, filing jointly) in 2018? (Consult Form 1040, Line 9) If so, you may want to consider bunching charitable contributions into one year and look into ways to accelerate certain expenses, such as your property taxes.

Are You Married?

Your marriage can have some tax benefits — though in retirement, there can be some complicated factors to filing jointly. Do any of the following apply?

  • You have a large disparity between your and your spouse’s incomes
  • You can claim large, itemized deductions
  • You have an income-based student loan

 

If you answered “yes” to one or more of these scenarios, you may wish to prepare a return as married filing jointly alongside a return as married filing separately to see whether one of these statuses provides a greater tax advantage.

Have You Been Divorced or Lost Your Spouse?

If you’ve experienced a divorce or death of a spouse, you need to review your filing status. Look at the top of Form 1040 to see whether you’re filing correctly.

If you entered into a divorce agreement in 2019, after the first of the year, alimony is not taxable for the recipient. If your agreement began before 1/1/19, alimony is deductible by the payer (Schedule 1, Line 31a) and taxable to the recipient (Schedule 1, Line 11).

Did You Have Any AMT?

If you paid AMT in 2018, you may want to consider strategies to reduce it for this tax year. Strategies like minimizing large capital gains and lowering income by maxing out retirement contributions can help. If you paid a large amount of AMT in 2017, look at Form 8801 to determine whether you received a credit for this payment.

Do You Have Certain Age or Disability Factors?

If you and/or your spouse are over age 65 and/or if you or your spouse is legally blind, you may be eligible for a deduction of $1,300 for each married taxpayer ($1,600 for each unmarried taxpayer).

Did You Have Any Tax Surprises in 2018?

If your 2018 tax responsibility was much higher or lower than you thought it was going to be, it’s important to check into what caused the change and whether that factor will impact your tax responsibility this time around. For those who experienced a higher refund, look to see whether you had a unique situation by comparing your taxable income from the past two years’ returns. On the other hand, for those who didn’t withhold enough for tax time, look at Form 2210 to review the penalty and determine your current tax liability for that amount.

These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, stay tuned for information about reporting your investment income and other issues.

This article is first in a series on Tax Considerations for the Retiree. Read of the series here:

  1. Tax Considerations for the Retiree – Family and Filing Issues
  2. Tax Considerations for the Retiree – Investment Income and Other Issues
  3. Tax Considerations for the Retiree – Qualified Plan Issues

 

This information is not intended to be a substitute for specific individualized tax advice.  We suggest that you discuss your specific tax issues with a qualified tax advisor. 

Your Mid-Year Financial Check-In

Keeping an eye on your financial health and investment performance is essential for staying on track for meeting your financial goals. To stay up to date, it’s important to schedule regular meetings with your financial advisor – and a mid-year meeting may be just the right place to start.

As summer comes to a close, it’s an ideal time for a financial tuneup. In addition to any personal questions and concerns you may have concerning your portfolio, here are some areas to check on when you meet with your financial advisor.

Review Your Investments

The only thing that’s certain about your investment portfolio is that it will always be changing. Over time and as markets fluctuate, certain investments may perform better than others. To stay on course with your financial benchmarks, you need to keep track of how your investments are performing.

Your financial advisor can help you monitor portfolio performance and provide direction when you have questions or concerns. If you decide it’s time to take a different approach to your investment mix, your advisor can help you explore different options that might make sense for your situation.

Take a Look at Your Tax Obligations

It’s a good idea to take a mid-year review of your tax obligations and formulate a tax strategy before you file next tax season. A financial professional can provide the guidance you need to review your situation and try to avoid any surprises once the new year rolls around.

As you work through your tax strategy, you will want to review your lifestyle and income to see whether there are any factors that could impact your potential tax return. Factors like a career change, a new home, or retirement could make a big difference when it comes time to file.

Mid-year is also an ideal time to tweak your strategy in order to offset your tax liability. You can defer funds to charitable giving and retirement investing or look into other strategies in seeking to maximize your potential return.

Make Adjustments as Necessary

Likely, after reviewing your income, investments, tax liability, and other factors, you’ll probably have some questions. Perhaps you’ll feel the need to make an adjustment here or reconsider an investment there.

Your financial advisor is the ideal partner for working through these mid-year changes. Not only can your advisor help you to work through paperwork and get into the details of your specific portfolio, but they can also provide professional guidance to interpret how your financial activity aligns with your financial goals and benchmarks.

By taking advantage of periodic check-ins – such as the mid-year meeting -, you can keep a finger on the pulse of your financial performance and hopefully avoid major surprises. Even when unexpected events occur, your advisor can help you navigate the outcome by bringing a more neutral perspective to balance any emotionality you might be tempted to act upon.

Are you ready for your mid-year financial check-in? Contact Puckett & Sturgill Financial Group today to schedule a consultation.

Can I Do A Qualified Charitable Distribution from My IRA?

If you’re looking for ways to use your IRA funds, you may consider a Qualified Charitable Distribution (QCD) as a way to meet your required minimum distribution (RMD).

Outside of the good feeling that comes from contributing to a worthy cause, one of the main benefits of a QCD is that it allows you to exclude the amount donated from your taxable income. Additionally, this amount doesn’t require itemization, which can bring a bit of relief to your overall numbers come tax time.

Of course, not all IRAs and investors qualify for QCD contributions. Read on to learn whether your situation is ideal for a QMD.

Qualifying IRAs

In order to make a charitable distribution with your IRA funds, your IRA needs to fall into one of the following categories:

  • Traditional IRA
  • Inherited IRA, including inherited Roth IRA
  • SEP IRA
  • SIMPLE IRA

Additionally, you need to be above the age 70.5 at the time that you plan to make a charitable distribution and, in the case of SEP or SIMPLE IRAs, must be no longer receiving employer contributions in order to qualify.

Giving Limits

While giving away your funds in the form of QCDs is a strategic way to meet your RMD, enjoy accompanying tax benefits, and benefit from giving to charity you cannot exceed a certain giving threshold. For couples, the QCD cannot exceed $200,000; for singles, the QCD must remain under $100,000.

Qualifying Charities

Charitable distributions are intended to be just that: charitable.

In order to verify the eligibility of a recipient organization, your QCD recipient must not be a private foundation or donor-advised fund. In general, most 501(c)(3) organizations qualify to receive QCDs. If you have a question about a particular charity, consult a financial professional to learn whether it qualifies for your donation.

Working Through the QCD Process

Once you’ve got an approved charity and know that your IRA funds are eligible for distribution, you’ll begin the QCD process to release the funds to the charity of your choice. Here’s how the process works:

Step One: Coordinate with Your RMD

You will want to distribute funds to a charity through QCD during the same year as your RMD. Ensure that you establish the proper timing for this distribution to coincide with your RMD in order to avoid penalties for missing your applicable deadlines or withdrawal requirements.

Step Two: Communicate with Your IRA Custodian

Your IRA custodian can help you to put your QCD plan into action, but there is some information that you need to communicate to get the process started. You need to submit your request in writing and need to specify the dollar amount you’d like set aside for QCD. Additionally, you should request this check be made payable to your charity of choice but mailed to you.

Step Three: Send the Funds to Your Chosen Charity

Once you receive the check, you can then forward it to the charity you’ve chosen. When you send the check, be sure to request a receipt so that you can update your tax records accordingly.

Step Four: Keep Your Tax Info Straight

When you file taxes for the year of your QCD, you will need to report the donation on your 1040 form. You can enter the donation amount on line 15a and put $0 for line 15b. Take care to note QCD.

Planning for Retirement

Whether you’re setting up an IRA or want to learn more about your options for taking your RMD, a financial advisor can offer personalized support for working through your retirement strategy. Contact Certified Financial Planner Jacob Sturgill to learn about how retirement planning can help you make the most of your future.

Important Disclosures:
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.