Dickson, Vanguard’s head of advice methodology, noted that using a QCD from a charitable standpoint offers advantages. For example, if you take a distribution and make a charitable contribution separately that’s doesn’t utilize a QCD, that could result in a higher adjusted gross income that can trigger Social Security taxation or Medicare premium surcharges. So if you make a charitable contribution through a QCD, it will not show up in the income line and you don’t have that impact.
Another CARES Act provision with potential year-end planning implications involves the waiver of the early withdrawal penalty on eligible retirement accounts. This provision allows for families whose spouses or dependents have been adversely affected by the pandemic to take early withdrawals of coronavirus-related distributions up to $100,000 without the 10% penalty that is usually charged to those who have not reached age 59½. The distributions must be made between January 1 and December 31, 2020. Individuals can spread the tax on these distributions over three years, and they have three years to return the money to their accounts.
Dickson pointed out that eligible requests for a coronavirus distribution claim must be made by Dec. 30.
In addition, he highlighted a big change resulting from the restructuring of the Stretch IRA, a wealth-transfer strategy that extended IRA distributions for non-spouse beneficiaries over their lifetime. The SECURE Act curtailed the Stretch IRA to 10 years, so the funds must be withdrawn 10 years after the original owner’s death.
Dickson said advisors should review beneficiary designations, especially certain trust structures like estate planning, if they were planning to use them to stretch out the IRA. “Those may no longer be relevant under the SECURE Act provision,” he said.
And as advisors meet with clients to assess their portfolios, he offered that they can provide another key service by lending an ear, showing empathy and providing reassurance that a client’s portfolio is on track despite the craziness that has been the year 2020.