End of Year Planning Strategies

November 27, 2018

Written by: Martin Shields

 

With the end of the year approaching, we want to provide a few tax planning tips for charitable giving and update you with the changes to the 2019 retirement savings contributions limits.

 

Qualified Charitable Distribution

The Qualified Charitable Distribution (QCD) strategy can prove to be beneficial under the new tax laws enacted last year since the standard deduction has increased dramatically and many households will use the standard deduction going forward and will not deduct their charitable donations.

If you are 70 ½ or older, have Required Minimum Distribution (RMD) from your IRA and have charitable interests, the Qualified Charitable Distribution (QCD) may be a good option for you to consider. The IRS allows direct distribution from an IRA to a qualified charity to count towards your RMD and there is no tax on the distribution. There is a $100,000 annual limit on distributions for this strategy and the distribution cannot be made from a 401(k) or 403(b) plan. Because the distribution from the IRA to the charity is a non-taxable event, the contribution is not deductible. Finally, the donation cannot be made to a foundation or a donor advised fund.

 

Combining Multi Year Charitable Donations

With the higher standard deductions under the new tax laws, one charitable giving strategy that may prove effective for individuals is to combine multiple years of gifting into one year. Combining multiple years of donations into one year may push your itemized deductions above the standard deduction amounts and allow the donations to be deductible. It is often beneficial to combine this strategy with a Schwab donor-advised fund. This is a qualified charitable account offered by Charles Schwab that you can use to make these combined distributions and then make the distributions from the fund to your charities of interest over time. The contributions into the donor advised account can be invested and distributions can be made from the fund to any qualified charity.   This approach allows you to make the larger charitable donation to receive the tax deduction and then make donations to your charities when you are ready.

 

Gifting Appreciated Stock

When making charitable contributions it is often beneficial to donated highly appreciated equity positions.   This allows you to potentially take the deduction for the donation and it allows you to forgo having to pay long-term capital gains tax on the realized gain if the position was sold and then the cash was distributed to the charity.   This strategy can also be combined with using donor advised funds.

If any of these strategies are of interest to you, or you want to explore them in more detail, please contact our office.

 

Retirement Savings Contribution Limits for 2019

In the fall, the IRS updated annual contribution limits and below is a summary of the major changes.

  • Traditional and Roth IRA annual limits increased from $5,500 in 2018 to $6,000 in 2019
  • $401(k) and 403(b) employee contribution limits increased from $18,500 in 2018 to $19,000 in 2019
  • If you are 50 and older the catch-up contribution amounts remain the same at $1,000 for IRAs and $6,000 for 401(k)s
  • For small business owners with Individual 401(k)s, the annual contribution amount increased from $55,000 in 2018 to $56,000 in 2019.

Also, just a reminder that Social Security benefits will increase 2.8 percent in 2019, the largest cost-of-living adjustment (COLA) in seven years.

 

Please let us know if you have any questions regarding the changes for 2019 and how they might impact your personal situation.

 

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