Monthly Insights Newsletter: June 2023

Patrick’s Planning Post

A New Idea For Retirement Account Distributions…

As circulated internally by the Amplius team last week, a recent WSJ article highlights a little-known tax planning & income strategy created by the SECURE Act 2.0, which was recently passed into legislation in December of 2022.

In a nutshell, here’s what you should know:

Background

• Unchanged by SECURE ACT 2.0, but important for context, IRA account owners age 70.5 and older can donate up to $100,000 of their IRA balance annually by sending the distribution directly to a qualified charitable organization
• This is a popular strategy known as a Qualified Charitable Distribution (QCD) to reduce taxes otherwise owed on taxable distributions from an IRA
• Often, those with the means to do so will consider a QCD as part of their overall financial plan to blunt the impact of income taxes due on Required Minimum Distributions (RMDs)
• This strategy has pros & cons, obviously, as a QCD reduces income taxes and fulfills philanthropic goals, but upon distribution, the account owner can no longer access or benefit from the money

The Strategy

• The article highlights “IRA-funded Charitable Gift Annuities,” essentially a twist on the QCD
• With the new SECURE 2.0 Act, individuals can gift up to $50,000 to a qualified charitable organization, exclude that distribution from income tax/reduce RMDs (as explained above), AND receive income back from that charitable gift for their lifetime
• Payments to the IRA owner/donor are based on pre-determined interest rates, which can increase as the individual gets older
• With the law change and higher interest rates, this strategy is becoming popular

As always, please reach out to us with any questions if you’d like to learn more.

Liebmans’ Library

For this month, we chose a Wall Street Journal article about the asset allocation of Baby Boomers, a generation that is at or nearing retirement age. According to the article, roughly two-thirds of U.S. adults age 65 and older own stocks either directly or indirectly. Earlier this century, the share of older Americans who owned stocks was closer to 50%. We view the more widespread participation in the stock markets as generally a positive development for both the investors and the country. That said, our fear is that many investors are invested in stocks more so than they otherwise would be simply because markets have been performing well in recent years. We are strong advocates for updating client asset allocation according to their risks, goals, financial situation, and financial plan. At a time when bond yields are higher than they have been in over a decade, stocks have more meaningful competition than they have had in quite some time. Again, we celebrate broader societal participation in the capital markets and think that individual asset allocation needs to be monitored to align to overall financial goals.

Libby’s Quips and Quotes

“Almost anything will work again if you unplug it for a few minutes, including you.” – Anne Lamott.