CPAs and other tax preparers will be additionally challenged this tax season. The 2018 tax returns they will be preparing will be the first under the new tax regime in the wake of the Tax Cuts and Jobs Act. Most changes were effective for 2018.

This makes it more likely that some IRA and retirement tax planning might fall through the cracks.

Here are three helpful 2019 retirement tax alerts for you to share with your clients’ tax advisors:

1. Take Early QCDs

Because of the tax law changes, more clients will have done qualified charitable distributions in 2018 than in the past, and even more will be planning them for 2019. But many clients may not have received the full benefit of the QCD for 2018 because they had already taken their RMD before doing the QCD transfer. They weren’t familiar with the mechanics.

QCDs are a tax-efficient way to make charitable contributions, but only for IRA owners or beneficiaries who are age 70½ or older. It’s too bad more people don’t qualify. Donor-advised funds don’t qualify and neither do gifts made to private foundations. Likewise for company plans like 401(k)s or 403(b)s since the QCD is only for IRAs.

The big tax benefit is that rather than including the annual required minimum distribution (RMD) in income and taking an itemized deduction, with a QCD the gift is made by making a direct transfer from the IRA to the charity. That transfer goes toward satisfying any RMD not yet taken and is excluded from income. There is no tax deduction for the donation since it is already effectively deducted by excluding it from income.

Unlike itemized deductions, QCDs reduce adjusted gross income. Itemized deductions do not. They only reduce taxable income. Taking an itemized deduction on an item that could have been excluded from AGI will increase the tax bill.

In addition, since the 2018 standard deductions are much higher, most clients will not be itemizing their deductions and will lose the tax benefit for their donations. The QCD lets them effectively salvage those deductions in addition to taking the standard deduction.

If a large charitable deduction is the item that allows the client to itemize, then it is still better to use the QCD, have the transfer excluded from income and then use the higher standard deduction. The tax will come out lower that way. If the client qualifies for itemizing without the charitable deduction, then still do the QCD. In that case, the IRA funds transferred through the QCD are still excluded from income and the clients can take the itemized deductions too, again resulting in a lower tax bill. By doing that, certain itemized deductions like medical expenses will actually be higher since the AGI will be lower. That will allow more medical expenses to be deducted. That’s especially important for 2019 since the threshold for deducting medical expenses increases to 10% of AGI (from 7.5% in 2018).

For 2019, don’t let clients miss the boat. Have them hold off on any RMDs until they do their QCDs. That’s why this must be addressed as early as possible in the year. Even though most clients tend to take their RMDs nearer to year-end, remind them anyway to make sure they don’t lose any tax benefit.

Advisors should remind tax preparers when QCDs are made since they will not be coded as such on the 1099-R being used to prepare the tax return. The 1099-R reporting will look the same as any other normal IRA distribution and can easily be missed by the accountant.

One more thing … only because I actually get this question from CPAs. Regardless of what our clients may think, gifts to children do not qualify as charity, so they also don’t qualify for QCDs.

2. Enter Roth IRA Contributions

Trick question: Where do Roth IRA contributions go on the tax return? Nowhere.

Roth IRA contributions are invisible on the tax return. So how can they be entered and why should they be entered?

By “entered” I mean entering the Roth contribution amount with the regular tax items being input into the tax program. OK, so why would anyone do that, when you won’t see the actual contribution appear on the tax return?

There are three reasons to do this:

A) Qualification

Sometimes clients make Roth IRA contributions when they don’t qualify, for example if their income is too high, or if they don’t have any earned income. By entering the Roth contribution, most professional tax programs contain diagnostics that will check this and send out a warning to the tax preparer that the client does not qualify for a Roth contribution. Then that excess contribution can be either recharacterized as a traditional IRA contribution (if the client qualifies) or removed in a timely manner as an excess Roth IRA contribution so the client can avoid the 6% penalty.

If the Roth contribution is not entered and the client didn’t qualify, there would be no diagnostic report sent and this could be missed. We just came across a case where Roth IRA contributions were made for 19 years and the client, who had too much income, didn’t qualify in any of those years. A new advisor on the case picked this up and consulted us on fixing this up for all the back years. What a mess. I guess maybe the client was doing his returns by hand, happily contributing to a Roth each year, even though he never qualified.

B) Basis

When Roth IRA contributions are entered into a program, it can keep track of Roth IRA basis in case a client needs to take early withdrawals. Once a Roth IRA owner reaches age 59½ and has had a Roth for at least five years, all of the Roth funds are qualified and can be withdrawn totally tax- and penalty-free. But if distributions are taken before then, the client (and the CPA) will need to know the basis to determine how much can be withdrawn tax- and penalty-free. When the client enters Roth contributions, the tax program will track the basis available to be withdrawn tax- and penalty-free.

Under the Roth IRA distribution ordering rules, the first dollars out are deemed to come from Roth IRA contributions and are always free of taxes and penalties regardless of the client’s age or reason for the early withdrawal. The professional tax programs that most CPAs use keep the history on this and carry it over to each succeeding year. So if a client made Roth contributions years ago but is still under age 59½, the program will show the basis but only if annual Roth contributions are entered into the tax preparation program.

C) Retirement Saver’s Tax Credit

When the Roth contribution is entered, the tax program will know if your client qualifies for the Retirement Saver’s Tax Credit of up to $1,000 per person (up to a 50% credit, depending on the income, of the contribution amount, capped at $1,000 per person). See IRS Form 8880 for details on the tax credit. The credit is nonrefundable.

Granted, this only applies to lower-income workers, generally younger workers on their own after they have started out in the workforce, but anyone age 18 or over who is not a full-time student can qualify, as long as he or she is not somebody’s dependent.

We had a situation once where a client asked us to prepare his child’s tax return now that the child was working and on his own (a very common favor for clients). The client made the full Roth contribution for the child and because we entered that contribution in the program, the child qualified for an $800 tax credit. That would have been missed by a firm not entering that Roth IRA contribution even though it appeared to have no effect on the tax return. It did, and the client was thrilled. This one item will make a client remember you, as well as the CPA.

3. Check RMD Shortfalls

As most advisors know, missing an RMD carries a 50% penalty on the amount not withdrawn. In reality though, almost no one ever pays that penalty. The IRS allows it to be waived for good reason. Early in 2019, before the 2018 tax return is prepared, is the time to do a review and see if any 2018 or prior year RMDs were missed. This goes as well for inherited IRAs and inherited Roth IRAs. Roth IRA owners are not subject to RMDs but inherited Roth IRA owners are.

If you find that all or any part of an RMD was missed, remedy the situation and have the client make that up immediately, preferably by taking a separate distribution of only the makeup amount. This will make tracing the makeup distribution easier if it’s questioned in later years. If this is done before the 2018 tax return is prepared, the request to waive the 50% penalty can be included on the tax return and the problem can be resolved at the same time, without lingering on and requiring additional filings.

The 50% penalty waiver request is filed on IRS Form 5329 (Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts). The 5329 form is included with the tax return.

In order for the IRS to allow the penalty waiver, a statement must be attached and it must include two items:

(1) It must state that the missed RMD was made up upon discovery (which is the reason to check that early in the year and take the makeup amount), and (2) it must provide the reason for not taking the distribution, which can be illness, family issues, advisor or tax preparer error, emotional stress from a divorce or lost job, or simply confusion about the calculation. No penalty need be submitted. The IRS will almost always waive the penalty, but not if the missed amount is not made up. That’s why it’s good to find this out early and fix it with the filing of the 2018 tax return. Problem solved. Client happy … and value added!

Ed Slott, CPA, is a recognized retirement tax expert and author of many retirement focused books. For more information on Ed Slott, Ed Slott’s 2-Day IRA Workshop and Ed Slott’s Elite IRA Advisor Group, please visit www.irahelp.com