Last Updated on January 23, 2020
It’s time to plan for the new year, so to help you get started, we provide a few year end planning tips for your Self-Directed IRA.
Year End Planning Tips for Your Self-Directed IRA
As we approach the end of the year, it’s important to make sure you’re maximizing your potential in regard to your Self Directed IRA. Since Self Directed IRAs are a powerful part of your retirement strategy, they do need to be reviewed as there are complex rules regarding distributions, contributions, and tax treatment. Each year presents an opportunity to review and revise, determine what works best for you, and ensure you’re meeting the requirements of your plan.
There are potential pitfalls associated with required minimum distributions (RMDs), penalties, and excess contributions among other things. Each year’s taxes need to be calculated and all monies accounted for, to make certain there was no over converting, for example. Following the rules of your plan is critical to maximize your financial reward.
Penalties for Missed RMDs
For your IRA, the end of the year offers opportunities to review your plan and its requirements. If you’re over 70 ½ , due to the IRS RMD rules, your IRA is subject to RMDs and failing to take them can cost you big. A 50% penalty tax can be imposed, so it’s something that should be on your radar to review if you fit the criteria.
Take Advantage of QCDs
Taking qualified charitable deductions (QCDs) can be a great way to take advantage of your IRA after the 70 ½ RMDs kick in. QCDs of up to $100,000 count towards RMDs and is not included in taxable income. This can be an advantage if you are trying to make charitable contributions and want to reduce your tax liability.
Roth Conversions occur when money is withdrawn in an IRA, turned into income, paid income taxes on, and converted to a Roth IRA. This helps with tax-diversification and should be handled with care. Contributions can be made through the end of the year, through April of 2020.
Stay Informed to Avoid Penalties
You can contribute to an IRA at year end, and it makes sense to do so, or at least set some money aside so you can better understand what your tax liability is for the year. Your IRA deductibility, or ability to contribute to a Roth IRA is affected by your income. Please note if you overcontribute to your IRA you could be subject to additional penalties and fees, which of course you want to avoid.
As always, the greatest tool you have when saving for your retirement is information. Keep your mind open to the latest data so you’re saving the maximum you can without going over and having to pay fees. As tax laws change, it’s also vital to keep abreast of any adjustments that can affect your income.
Year End Planning to Strategize
The end of the year is a traditional time to see how the past year went, plan for the future, and make strategic decisions, and it’s always a good time to keep an eye on your money. As you look at the year ahead, review plan criteria and restrictions, and set your financial and life goals, keep your IRA in mind for all it can help you to do.