Computer hackers are people who break into internet-connected devices like computers, tablets, and smartphones, usually with the intent to steal, change or delete information. They do this by installing malware (software used for malicious purposes) you might not even know is there. These thieves might get access to your most precious data, including your financial information, before you know your device has been breached.
As the year flies by I have noticed more and more questions of uncertainty revolving around one particular subject, Required Minimum Distributions or RMDs. More specifically the question is, “Are RMDs required for 2021?” I believe the reason this has become a topic of uncertainty is due to the fact that for 2020 RMDs were not required. This relief was one of the many items included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act was passed into law in March 2020.
Before I answer the question of topic, let us refresh our memory on the basics of RMDs. RMDs were established by the U.S. Tax Law as a means to collect taxes on tax-deferred retirement accounts. Like most of the tax code there are various exceptions and specific circumstances that convolute the RMD rules. For the sake of simplicity, RMDs establish a set dollar amount that a person 72 or older is required to withdraw annually from their tax-deferred retirement account. This amount is determined by taking the prior year-end balance of the tax-deferred retirement account and dividing it by a Life Expectancy Factor that can be found using the IRS Uniform Lifetime Table located in IRS Publication 590.
Without RMDs in the tax law, these funds could, in theory, remain in tax-deferred accounts growing annually and delaying taxation for generations. As a means to make sure this did not happen and allow the IRS to collect taxes in a timely fashion on these funds, RMDs were established.
Now, back to the question at hand and to settle any uncertainty on 2021 RMDs. For the 2021 tax year, there has been no relief issued and RMDs ARE REQUIRED to be distributed by 12/31/2021.
There are a few points to be made regarding RMDs that I would like to note. First, RMDs must be taken directly by the account owner and be included in the account owner’s 2021 Adjusted Gross Income. Alternatively, if certain criteria is met, the RMD of up to $100,000 may be paid directly to a qualified charity of your choosing. If paid directly to a charity, this is considered a Qualified Charitable Distribution (QCD). With QCDs the amount distributed directly to the charity will not be includable in your Adjusted Gross Income and will still satisfy the annual RMD requirement.
Hopefully, the requirement of RMDs for 2021 is of no surprise to you but if it is, there is still time to act. Begin discussions with your CERTIFIED FINANCIAL PLANNER™ professional and Certified Public Accountant to properly plan for both the timing of the distribution and an appropriate strategy for payment of any associated tax that may be generated
Published in the Victoria Advocate
Christopher Laughhunn CPA/CFP® is the Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for KMH Wealth Management, LLC.
August 14 is Financial Awareness Day. While you’ll probably see plenty of articles about getting your finances in order or raising financially literate kids, there’s another layer to financial awareness that often gets forgotten: planning for aging parents. I’m an only child of two middle-aged parents (don’t tell them I called them that) so it’s extremely important that I am aware of what their plans are for the future. I’d recommend you do the same with your loved ones.
I know what you’re thinking – No, you don’t need to ask the exact balance in your parent’s bank account to be more aware of their financial situation. Asking the right, sometimes uncomfortable, questions now can help all parties involved feel better prepared for the future.
Long Term Care – Knowing what, if any, long-term care coverage your loved ones have is a key part of planning for the future. The cost of long-term care can be astronomical, especially for an illness that could span out over several years. Another important piece of this conversation is understanding what your loved one’s wishes are. Are they open to moving into a nursing home or assisted living facility? Or, are they planning for you to be their primary caretaker?
Estate Documents – Cognitive and physical decline can happen quickly. Having the power of attorney documents in place for financial and medical decisions sooner rather than later are a crucial part of planning for the future. Ask questions like, ‘Who would you want to make hard medical decisions for you if needed?’ and, ‘Is there someone you would trust to handle your finances if you were unable?’
Final Wishes – While no one wants to imagine a world without their parents or loved ones present, there is value in discussing their final wishes. Maybe it’s a family heirloom that should be passed down to a niece, or a specific song that they want played at their funeral service. Having these conversations early can ensure that their wishes are known and planned for.
Financial Accounts – As mentioned earlier, having conversations with family about finances doesn’t mean that you’re asking for the balance of each bank or investment account. Rather, it’s important to ask where things are located and/or if there is someone specifically that your family member has worked with. In an age where everything is electronic, it is not as simple as it once was to track down statements or account holdings. Ask your parent or loved one if they keep a list of all of their accounts and log in information somewhere safe for you to find later when needed.
These conversations may seem uncomfortable, but they don’t have to be. Start with the basics, remember to start these conversations from a viewpoint of wanting to be more aware for the future, and as always, reach out to a CERTIFIED FINANCIAL PLANNER™ Professional if you need more guidance along the way.
Published in the Victoria Advocate
Sara Potts is a CFP® Professional and Operations Manager with KMH Wealth Management, LLC.
Planning today will enable you to chart a course towards fulfilling your goals for tomorrow.
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