Required Minimum Distributions (RMDs) take effect the year an IRA owner turns 73, so the government can start collecting taxes. This is payback for making tax-deductible retirement contributions while working. A few years ago, Congress enabled retirees to give any portion of RMDs tax-free charitably!
The Qualified Charitable Distribution option allows for gifting to recognized charities, which counts towards satisfying the RMD. This avoids income tax regardless of whether you are eligible to itemize.
For example, if you typically give $10,000 a year to your favorite charities, you’re probably paying taxes on this money first. So, it costs you $12,200 or more, including taxes. If you make gifts straight from your IRA, you keep more than $2,000 (plus any state tax) in your bank account!
The recipient must be a recognized 501(c)(3) charity (which is typical of religious, education, or community service organizations). Your IRA custodian may have a minimum amount per gift and will have their own paperwork to complete. You can gift as much or to as many charities as you wish, up to the total amount of your RMD.
This is just one of the tax management strategies we employ at Integras Partners. For ideas on how we might help you invest intelligently, nurture your communities, and enjoy financial peace, schedule a call with us!
So, enjoy today and tomorrow, and let us do the worrying!
In an ongoing University of Michigan survey, older Americans recently expressed less confidence about having a comfortable retirement.[1]
Inflation is the likely driver of this worry (both inflation itself and the affect it has had on the stock market). To top it off, the inflation that retirees actually experience is typically higher than the headline numbers. This is because retirees spend more on services, such as healthcare and housing, which tend to have a higher inflation rate than goods.
Integras Partners developed investment strategies with retirees in mind. Investment risks needed for growth are limited to longer timeframes. So, money for short-term needs is shielded from market risk. Each client’s unique portfolio allocation is driven by our financial planning process, which accounts for anticipated spending and ongoing inflation.
There is a flawed assumption that 4% portfolio distributions are sustainable throughout retirement. Unfortunately, this has proven to be unreliable for too many retirees. The problem doesn’t lie in the math of a withdrawal rate but with the structure of the portfolio.
Retirement portfolios are often assigned a 60/40 allocation (60% stocks with 40% bonds and cash) with monthly distributions drawn proportionately across all assets, regardless of market direction.
In down markets, this strategy forces the sale of more shares to generate cash. The worrisome decision now facing the retiree is whether to increase the pressure on the portfolio by taking the same distributions or to decrease income. Neither is desirable.
Integras Partners takes a healthier approach to retirement income planning.
We layer our clients’ portfolios with designed strategies matching the timeframes of withdrawals.
By isolating more stable assets for short-term spending, we insulate early distributions from random market performance. Assets we don’t need until later have appropriate time to capture growth.
Our clients comfortably spend during market declines without being forced to choose between taking less income or the fear of possibly running out of money.
Several years ago, a client couple referred their neighbors. Let’s call them Jim and Kate. They had been married almost 20 years and had established careers and two younger children. After recently purchasing their dream home, they came to us to help consolidate multiple investments and build a financial plan for their retirement. We started by solidifying their college savings, reviewed existing life policies, and started managing their accumulated retirement accounts.
Jim was an early employee of his firm and was working with leadership to design his exit strategy. He wanted to spend more time with family, and was starting his own business. A few years later Jim got sick, and we sat with them at the attorney’s office to draft wills and healthcare directives. Fortunately, his life insurance was already in place, as insurance companies won’t issue a policy once a serious healthcare issue arises.
Jim recently lost his battle with a debilitating illness. Through the waves of emotions that followed, we were able to provide Kate with peace of mind around her financial future, so that she could focus on her family and their grieving. When she was ready, we helped her reregister accounts, file insurance claims, update her will, and refine college planning. Thankfully, the life insurance benefits more than covered expenses while she took a leave of absence from work and prepared their oldest child for college.
Kate has told us many times how grateful she is to be able to lean on us. A year after losing her husband, we helped her dismantle her inherited business and work through the pros and cons of strategies to help restart her life, including selling their family home and securing financial freedom.
Partnering with a trusted Financial Advisor now could be one of the most important moves you make. Life is unpredictable. When you find yourself faced with stressful life changes, having built strong advisor relationship will prove to be invaluable.
