If you own a $1 million IRA account and live in a state with a high income-tax rate, here's a financial planning tip that could save you thousands annually on state income tax. The strategy requires setting up a trust in a state with no income tax, which is probably not something you do every day. So, here's a primer.
"Financial peace of mind" is an overused term in financial services marketing. However, the help we provide in settling financial details of your estate indeed may bring you genuine-and eternal-peace of mind.
Trusts funds used to be the realm of the wealthy, providing a tool to pass money to heirs and charities. Nowadays, though, they are becoming a means for more people to engage in smart estate planning.
With summer 2019 now underway, here are three strategic mid-year tax planning tips.
Do you own a large IRA and live in a state with an income tax? Consider setting up a non-grantor trust in a state with no income tax. While this financial planning tactic may sound exotic, it's common sense and can make a material difference in your life and beyond.
In June, the economic expansion entered its eleventh year, officially setting a new record as the longest growth cycle in modern U.S. history. The previous record-setter was the 10-year expansion that bracketed the 1990s.
Bid adieu to stretch IRAs! A new tax law widely expected to become law by the end of 2019 will kill this strategy for passing on your IRAs to the next generation while minimizing the amount that goes to Uncle Sam. Adoption of the legislation is not sure, but it is highly likely, making it wise to plan now for the demise of the stretch technique.
Say goodbye to the stretch IRA! That's the message from Congress, where a pending bill with bipartisan support would deep-six this tax-advantaged practice. Stretch IRAs have been a boon to non-spouse beneficiaries who inherit a retirement account because they can extend the period of tax-free growth on an inherited IRA over their expected lifetime.
A sweeping new law changing retirement investing tax rules was passed by the House of Representatives on May 29th. It's expected to be passed by the Senate and has the support of President Donald J. Trump. Although the legislation may not be signed into law until late this year, individuals with retirement accounts should consider how its enactment will affect them and their beneficiaries. Here's what you need to know now:
The amount of coverage in the media of the U.S. - China trade war is far out of proportion with the potential impact that China - U.S. trade has on the U.S. economy.
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Give To Charity From An IRA To Lower Your Tax Bill
To keep your tax bill down, if you are over 70½, consider a qualified charitable contribution, which makes donations of up to $100,000 from an Individual Retirement Account (IRA) to a fully deductible charity.
A qualified charitable distribution (QCD) lets you donate from a traditional or inherited IRA, provided you meet the age requirements.
A QCD can help you eliminate, or at least reduce, taxes owed on your required minimum distribution (RMD). That's the amount you are required to take out of your IRA account annually after turning 70½.
Example: Your yearly RMD is $20,000, which counts as taxable income. But if you donate that amount to a charity, it's not counted as income, which may drop you into a lower tax bracket.
Moreover, you don't have to itemize to take this tax deduction. That's good news for Americans no longer itemizing deductions on their returns. To be sure, some taxpayers are hurt by the Tax Cuts and Jobs Act's $10,000 cap on state and local tax deductions, so a qualified charitable distribution can make sense.
You don't have to donate the entire amount to a single charity. You can divvy up a QCD among multiple IRS-eligible charities, within the $100,000 annual limit. You don't have to use 100% of your RMD for the donation, of course, and can keep what you need to pay for your living expenses and donate the rest.
QCDs require careful attention to ensure your donation is made from an individual retirement account — not a 401(k) or 403(b). In addition, you may not make a QCD and also itemize charitable deductions. You must to pick one. Plus, the charity must not be a private foundation or a donor-advised fund. These technical details are crucial.
Another QCD tip: Make the contribution straight from your IRA. The RMD money must never be in your personal, non-IRA account. Send your IRA custodian instructions to send the check directly to the charity, with the organization's name on the check. Have the IRA custodian send you documentation that you made the donation.
Finally, be sure to make the donation before you take your RMD. Should you take the RMD first, you can't give the money back to the retirement account and will be ineligible to deduct it.
The QCD is a fairly complex solution to lower taxes and requires the advice of a qualified tax professional.
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