Your questions about IRA rollovers, distributions
Q: My accountant told me that if I make a contribution to my IRA in 2020, it will affect my ability to make a qualified charitable distribution (QCD) directly from my IRA and be able to deduct the deduction on my tax return? Is that right? Do I have any other options?
A: Your accountant is correct.
For example, assume you plan on contributing $1,000 to your traditional IRA in 2020, and also make a charitable contribution of $3,000 directly from your IRA trustee. Normally, you would be able to deduct the $3,000 from your adjustable gross income on your tax return.
However, the IRS would only allow you to deduct $2,000 because of your
IRA contribution. The IRS believes that allowing both in full would give you a double tax advantage.
However, you can get around this restriction by making your contribution to a Roth IRA. If you don’t yet have one, you can establish one as long as you have income in 2020. You would then be able to subtract all charitable contributions from your AGI made from your traditional IRA made by your trustee. Even though you would not be able to take a tax deduction on the Roth contribution, there would be tax advantages associated with the Roth account. Qualified distributions from your Roth account made five years after a Roth is established would be tax free. This would include all income earned and any capital growth.
Q: I am confused about the incentive to make a QCD for 2020. You indicated in one of your columns that it is not necessary for me to take a required minimum distribution in 2020. Why should I take one if I don’t have to?
A: It is true that you don’t have to take a required minimum distribution this year. However, if you plan on making a charitable contribution this year, and if you do have your trustee make a charitable contribution directly from your traditional IRA, you will be able to deduct the contribution from your adjusted gross income. Whether that makes sense depends on the amount of your charitable contribution.
As I wrote in a prior column, for your 2020 tax return, you will be able to take an above-the-line deduction of $300 ($600 for a joint return) on your return. However, if you plan on making a larger charitable contribution, then using the QCD does provide you with a deduction you wouldn’t have otherwise if you take the standard deduction.
There is a disadvantage, as you know. Once you take a withdrawal from your IRA, you would lose the tax advantage associated with maintaining the funds in your IRA, specifically the growth potential and the tax deferral. However, if you are making the charitable contribution anyway, you would have to withdraw funds from other assets outside your IRA and also lose the growth potential of
those assets.
Q: I have IRA accounts with more than one financial institution. I have had more than one RMD taken between February 1 and May 15 from two different financial institutions. Can I roll over one RMD from each financial institution that I have IRAs with?
A: No. The IRS assumes that even if you have IRA accounts with more than one financial institution, you can only roll over one of the RMDs taken between February 1 and May 15. The rollover rules specify that an individual can only do one rollover per person within a 365-day period. However, it is possible that the IRS will issue new guidelines and allow all RMDs taken in 2020 to be rolled over. We can only hope.
Elliot Raphaelson welcomes questions and comments at raphelliot@gmail.com.
In a recent survey, Challenger found 37% of companies have instituted hiring freezes, while 4% have revoked internship offers for the summer, many of which tend to go to older teens and college-age workers.
“If we are able to weather this crisis and get businesses back up and running soon, we may see a surge in teen hiring,” said Andrew Christmas, a senior vice president with the job placement company. “However, teen workers, as well as any job seeker, may be much more wary of accepting public-facing roles.”
The unemployment rate for ages 16-24 hit 27.4% in April, according to the U.S. Bureau of Labor Statistics. And it’s expected to keep climbing. Last July, U.S. youth unemployment fell to 9.1%, the lowest level since July 1966.
While it’s an uncertain summer for hiring, don’t let the challenges stop your kids from coming up with strategies to make money.
Many parents working from home are in need of a few hours of uninterrupted work each day and may be looking for a responsible teen to babysit or provide childcare. Teens can also turn their driveway into a neighborhood sports camp, teaching younger kids to perfect their jump shot or soccer footwork.
Kids could market their computer skills to help adults who are more technologically challenged, whether it’s setting up a Zoom conference or offering tutorials on getting the most out of a smartphone.
Back-to-basics jobs, such as mowing grass or washing and detailing cars, are always in demand, even in the midst of a pandemic. Many grocery stores are on a hiring binge for sackers, checkers and shelf stockers, but those jobs also come with some social distancing risks.
There are other ways for youths to gain job experience and keep busy this summer.
Even if a paycheck isn’t involved, food pantries and other nonprofit community groups are in need of help as long as social distancing and other safety practices are followed.
Questions, comments, column ideas? Send an email to sbrosen1030@gmail.com.