Required Minimum Distributions, Donor Advised Funds, and Updates from the Federal Reserve
Required Minimum Distributions
Required Minimum Distributions, or RMDs, are required again after being waived for all in 2020. Our assumption for clients who have pre-tax accounts under SAS management is that instructions for those receiving RMDs before 2020 are the same. If they are different please let us know.
If 2021 is the first year for your RMD then book a time to meet with us to discuss your options. RMD rules for 2021 state that if you turned 72 in 2021 then you need to begin your distributions this year. If you are in that category, please, book a client meeting with your SAS Advisor Team to explain your options.
Donor Advised Funds
Donor Advised Funds (DAF) are a vehicle designed for charitable giving in a very donor-friendly structure. A DAF allows you to contribute appreciated securities or cash to one account and write grants from that one account to any 501(c)3 charitable organization.
We have typically encouraged clients to consider appreciated securities as charitable donations. Appreciated securities are those securities that are worth more today than when they were acquired, in many cases, are worth significantly more today than when they were originally purchased or acquired. Capital gains are the difference between a security's current value today and the security's cost basis, the value it had when it was acquired or originally purchased.
Charitable contributions made with highly appreciated stock shares require a separate transaction and are dependent on the charitable organization having a brokerage account to receive the donation. For those who've established a Donor Advised Fund, these requirements are not necessary. An added benefit is that your charitable deduction is front-end loaded. This means that for the amount you contribute initially, you are allowed to deduct, in full, on your tax return in the same tax year (assuming you exceed the standard deduction).
There is no requirement to give away your contribution made to the DAF in the year it is made, providing you the donor ultimate flexibility on your giving. In fact, you can spread out your giving over any time period you choose. If the DAF is right for you, calculate your average annual charitable donation amount for the past few years and make a contribution to the DAF made up of multiple years' contributions at once. Ensuring that your contribution and other allowable tax deductions in total exceed the standard deduction is the best strategy. Many large charitable organizations offer DAFs as well as custodians such as Schwab Charitable, Fidelity Charitable, and Vanguard Charitable. Once you open a Donor Advised Fund by completing the application of your chosen custodian, the SAS team can help you choose the securities to transfer to your DAF. It is important to act expeditiously if you plan to make donations in this tax year because you will need to set up your DAF fund, which takes some time, and then transfer the assets all before 12/21/2021.
Here is a link to a helpful article explaining DAFs: https://www.consumerreports.org/charitable-donations/donor-advised-funds-things-to-know/
Updates From the Federal Reserve
The Federal Reserve ended its meeting this week and issued a statement confirming an easing of the monthly purchases of US Treasuries and mortgage-backed securities (tapering). This was expected by analysts, but more importantly, by the markets, the justifications for tapering is that the US economy is meeting the Fed's expectation for growth. It is important, the Fed stated, that tapering should not be taken as any change in keeping interest rates unchanged. Comments about inflation indicated the Fed still thinks inflation is “transitory” and will ease in mid-2022. The supply chain problem should ease, according to the Fed, as the pandemic eases.
A recommended reading from the New York Times that is great fun to help understand people relationships and behavior change based on methods of training animals. This is one of the most emailed columns in the NY Times history: https://www.nytimes.com/2019/10/11/style/modern-love-what-shamu-taught-me-happy-marriage.html
For 2021, Required Minimum Distributions, or RMDs, will be required from all eligible accounts before 12/31/2021. Last year, 2020, the CARES Act provided a one-year suspension on Required Minimum Distributions. That suspension ended on 12/31/2020.
To determine if you may be required to make a Required Minimum Distribution in 2021, consider the following two questions:
- Yes/No: Are you age 72? OR were you age 70.5 years old as of 1/1/2020? OR Regardless of age, do you own an inherited or beneficiary retirement account of any kind?
- Yes/No: Do you own any of the following employer-sponsored retirement plans? Profit-sharing plans, 401(k) plans (including Roth 401(k) plans), 403(b) plans, and 457(b) plans. Do you own any traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs? (Note: RMD Rules do not apply to Roth IRAs while the owner is alive).
If you answered "Yes" to both of the above questions, you may be required to make a distribution from each eligible account before 12/31/2021.
For SAS managed accounts eligible for a 2021 RMD, please contact the SAS Advisor Team with the following information before 10/31/2021:
- If you would like your RMD to be completed with the same instructions as 2019
- The percentage to be withheld for federal *and* state taxes, or mark none
- The account to receive the RMD funds into either another owned Individual, Joint, or Trust account managed by SAS, or an external linked account not managed by SAS
- If banking instructions are not on file, please complete, sign and send back the following form to the SAS Advisor Team along with your responses: https://veoone.tdainstitutional.com/teamsite_vdh/resources/documents/downloadforms/TDAI9341.pdf
For non-SAS managed accounts eligible for a 2021 RMD, contact that account's advisor, custodian, or plan administration to complete the 2021 RMD before 12/31/2021.
IRS RMD Reference Link per the date of this blog 10/15/2021: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions
This website is informational only and does not constitute investment advice or a solicitation. Investments and investment strategies recommended in this blog may not be suitable for all investors. SAS Financial Advisors, LLC and its members may hold positions in the securities mentioned within this newsletter.