By Sarah Brenner, JD
Happy 4th of July to all the loyal readers of the Slott Report! This summer holiday is a time for barbecues. This is a time when all ages come together to celebrate. Families will gather to grill hot dogs, roast marshmallows and watch fireworks. If the conversation around the grill should happen to turn to Retirement savings, here are 4 IRA tips, one for each generation of guests, to share while you celebrate:
It’s never too early to start to save. Here is a tip to share with younger guests who might be just starting their careers. With student loans and the high cost of housing, the last thing on a millennial’s mind is saving for Retirement. However, when it comes to Retirement, young people have a huge advantage – time. Contributions, even small ones, to a Roth IRA now can grow tax-free for years and years. An early start is a great strategy for a secure Retirement.
Expect the unexpected. Your barbeque may not go exactly as planned. There may be showers or it could be really hot. Life is the same. It does not always go according to plan. Ideally, Retirement funds should not be touched until the golden years. However, your GenXer guests in midlife may discover that life is not always smooth sailing. A good tip for these guests is that funds saved in an IRA can be accessed when the unexpected happens. While a traditional IRA distribution will be taxable, the rules do allow penalty-free early distributions in some circumstances. Roth IRA tax-year contributions are always available tax and penalty free.
Enjoy the Sweet Spot. Who doesn’t enjoy something sweet once in a while? Almost everyone enjoys a slice of cold watermelon at a hot barbeque. Those guests attending your holiday barbeque who happen to be between ages of 59 1/2 and 70 1/2 are in the IRA “Sweet Spot.” In the IRA Sweet Spot there are no required distributions and no penalties for early distributions. There is complete flexibility when it comes to IRA distributions. Guests lucky enough to be in the Sweet Spot should not miss the chance to do some proactive distribution planning when it comes to their IRAs.
Don’t miss out on this tax break. Do you have older guests coming to your holiday gathering? While the burgers are cooking, don’t miss out on the chance to mention qualified charitable distributions (QCDs). A QCD, available to IRA owners age 70 ½ and older, is a tax-free way to move funds directly from an IRA to a charity. A QCD can satisfy an RMD and is a great way to get a tax break for contributions to charity. The QCD strategy has become even more valuable since tax reform changed the rules and more taxpayers are electing the standard deduction.