As Tax Filing Day 2022 Approaches

Categories : Financial, News
March 9, 2022

Difficult as it is to look back at 2020 with any fond recollections, for some Americans the single-year suspension of Required Minimum Distributions (RMDs) from Qualified Retirement Accounts was an actual highlight. The introduction of COVID-19 to our shores created severe turmoil in the markets, and most account balances were in need of bolstering.

As Tax Filing Day approaches, we focus on the few remaining methods of helping our own financial situations. Some 2021 opportunities expired at midnight on December 31, 2021, but others remain until Tax Filing Day in April of 2022. Most noticeable is the funding of a Traditional Individual Retirement Account or IRA.

Decreasing last year’s tax bill can be as easy as making a (last year’s) contribution to a Traditional (deductible) IRA. Receiving the tax deduction requires that the contribution be made on or before the Filing Date and that the deduction be allowable under IRS rules for IRA deductibility. IRAs can be opened and funded at the same time, and IRS will even make direct deposits (contributions) for you from a tax refund if so desired.

Sadly, RMDs returned for 2021. If for some reason you failed to take an RMD in 2021, distribute it immediately to limit potential penalty coats. It is too late to do anything rather than mitigate your loss.

Another pertinent IRA topic for this time of year is Charitable Giving. We know that most people get into the charitable mood later in the year, but one common mistake can be very costly, and it needs to be discussed early in the year. Many IRA owners aged 70-1/2 or higher do not understand the Qualified Charitable Distribution or QCD. Donations to qualified charities can be made by these people directly from their IRAs, and the tax savings are automatic because the income is not recognized on their Form 1099.

Here’s the rub: QCDs are able to be counted as RMDs, but RMDs cannot be classified as QCDs. That presents a timing situation.

That sounds complicated, but it is actually quite simple. One of the most common methods of distributing RMDs is to spread payments throughout the year as monthly income. Anyone using this distribution method, and also contemplating charitable gifting using the QCD method, must be aware of the sequencing of withdrawals in order to preserve the available tax advantage.

RMDs can be satisfied with a combination of regular withdrawals and QCDs. Planning for both is required in order to assure the availability of QCDs without over-drawing the account RMD (legal, but unwanted). Executing QCDs prior to taking RMDs assures the best tax advantage available. We can assist with tax planning and withdrawal timing.

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