Year End Reminders for Tax and Estate Planning

November 28, 2016 |

The last months of the year are often hectic and it is easy to overlook important deadlines. Below are a few items to keep in mind as the new year approaches:

IRA Required Minimum Distributions and Qualified Charitable Distributions by December 31

Retirement funds in an IRA, SIMPLE IRA, or SEP IRA cannot be kept indefinitely. If you have reached the age of 70½, you must withdraw from your account a minimum amount each year called the “required minimum distribution” or “RMD.” This RMD amount is calculated annually based on the year-end balance of the previous year.

You are not required to take your first RMD until April 1 of the year after you turn 70½. Thereafter, each RMD must be taken by December 31. The penalty for failure to take an RMD is a 50% excise tax on any undistributed portion of the RMD.

The RMD received by the account holder is taxable income. Recent legislation has now made permanent the “Qualified Charitable Distribution” (or “QCD”) which many individuals used to incorporate charitable giving into their tax and estate planning. In using a QCD, the account holder directs the IRA administrator to pay the RMD amount directly to a charitable organization (but not a private foundation or donor advised fund). By using the QCD, the account holder satisfies the RMD withdrawal requirement, avoids recognizing any taxable income, and supports a charity of his or her choice. Making a QCD can be as simple as a one-page letter sent to the IRA administrator.

Annual Exclusion Gifts by December 31

In general for 2016, a person can give away up to $5.45 million in assets (during life or upon death) before an estate or gift tax is imposed. One major exception is that a person may give up to $14,000 to any individual without the gift counting against the $5.45 million exemption amount and without being required to file a gift tax return. These $14,000 gifts are often referred to as “annual exclusion gifts.”

Many individuals use annual exclusion gifts to transfer large amounts of assets over time to reduce estate tax exposure in the future. The gifts can be made directly to an individual or to a trust established for the benefit of one or more persons. The deadline to make annual exclusion gifts is December 31 each year.

Please contact Kent Silvester, Stuart List, or Stacey Brennan if you have any questions regarding this article.

Legal disclaimer: The information in this article (i) is provided for general informational purposes only, (ii) is not provided in the course of and does not create or constitute an attorney-client relationship, (iii) is not intended as a solicitation, (iv) is not intended to convey or constitute legal advice, and (v) is not a substitute for obtaining legal advice from a qualified attorney. You should not act upon any of the information in this article without first seeking qualified professional counsel on your specific matter.