dsmWealth April 18, 2019

Kelly LaVigne, Allianz Life Insurance Company of North America.

Oh, the Agony of the Required Minimum Distribution
BY STEVE DINNEN

In some circles RMD could be construed as a dirty word (or at least, dirty initials). It stands for required minimum distribution, and it pertains to the amount of money the government says you must withdraw from your IRA once you hit age of 70 1/2.

But not everyone wants or needs their RMD. In fact, a recent survey of high net worth individuals by Allianz Life Insurance Company of North America found that 80 percent of them have no need to tap into their retirement savings account in order to meet daily living expenses.

The government didn’t tax you on earned income that you funneled into your 401(k) or qualifying IRA during your working years. But it didn’t forget about it and now wants its cut.

What to do? The choices are few:

A. Decline to take an RMD. Get slapped with a 50% penalty. Repeat that injury next year.
B. Take the payment. Then pay income taxes – at the rate applied to ordinary income that could well be higher than the capital gains rate that would apply to profits earned on investments held outside an IRA.
C. Give the RMD amount to charity. Avoid any tax. Be a good citizen.

Kelly LaVigne, a vice president at Allianz based in Minneapolis, said option C might be the best route if you have no need for the money. The IRS says a qualified charitable distribution (QCD) donation satisfies the RMD requirement for the year. As part of the 2017 tax overhaul, this benefit was made permanent.

There is a limit to the government’s generosity. You can avoid taxes on only $100,000 of donations per year (married filing jointly? Your spouse can give away up to $100,000, as well). So if you give away $120,000, for instance, the $20,000 counts as a taxable distribution.

This rule applies to a variety of IRAs – traditional, rollover, inherited, and inactive SEPs and SIMPLEs. Just make sure that checks written from these accounts go directly to the charity and do not touch your hands.

Another bonus: While ordinary charitable gifts are accounted for on tax forms by itemizing deductions, that’s not the case with QCDs. More and more taxpayers are finding it difficult to itemize due to the tax law change that raised the standard deduction.

Kent Kramer, a financial planner in West Des Moines, said that for people who are charitably inclined, "the law is very favorably inclined" as well.

Talk with your tax adviser on which route to choose. But don’t let it be option A.

European Travels Get Trickier Starting in 2021
BY STEVE DINNEN

You don’t have to cancel any future travel to Europe, but starting in 2021 you’ll have to plan ahead – and get permission to go ashore.

Starting Jan. 1, 2021, Americans (and some other nationals) traveling to any member nations of the European Union will need to secure a visa-like document prior to their arrival. It’s called the European Travel Information and Authorization System – ETIAS – and will be filed online and will be valid for three years. It applies to all travel to 26 member nations (25 once Great Britain exits).

The EU will demand your fingerprints along with information on such things as your education and work experience. Do they really care where we went to high school, or are they just being snoopy? Regardless of what we think, they tell us it’s meant to enhance security. Or it could just be tit-for-tat for the current American demand that citizens of five EU member nations obtain visas before they land on our shores.

Jody Valentine, co-owner of Allied Travel in Johnston, says there’s little cause for concern that an ETIAS will disrupt our lives. Americans traveling to many nations already need full-blown visas, so this is not exactly unusual (though perhaps unexpected). Anybody remember not needing a visa in 2016 when they went to Brazil to watch the Olympics? Or what about China, Russia? Lots of countries do this; the EU is just now joining the club.

Even 'Top Earners' Might Be Unprepared for Retirement
BY ANNIE NOVA, CNBC

We all know that low- and middle-income workers generally don’t have enough saved for retirement. Richer folks, it turns out, might be in the same boat. That’s the takeaway from a new study by economists at the Schwartz Center for Economic Policy Analysis at the New School for Social Research.

"We always knew the bottom and the top were different and that they were growing apart," said Teresa Ghilarducci, an economics professor at the New School for Social Research and a co-author of the report. "But we were surprised that our retirement system creates winners and losers even within the same class of workers."

The researchers tracked the retirement savings of people ages 51 to 56, using the Health and Retirement Study and IRS tax data. The project took two years.

The authors found a great range in preparedness levels among people in the top fifth of the earnings distribution, suggesting that even many prosperous Americans could struggle financially as they climb up the decades in age. > LEARN MORE