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October 2019 Quarterly Newsletter

Year End RMDs and QCDs

Individuals often save their entire working lives for one specific day, their retirement

date. There are a host of retirement savings plan options including profit sharing, 401(k),

403(b), SEPs, and IRAs. Most of these plans offer pre-tax contributions, and tax deferred

growth and an ordinary income tax upon distribution from the plan.

Retirement plans were never meant to be an accumulation program to pass wealth to

future generations; therefore, Congress enacted laws (Section 401(a) (9)) that require

individuals to take mandatory distributions during retirement years. In this Newsletter,

we will examine the rules affecting the Required Minimum Distribution laws.

Required Minimum Distributions (RMD) Defined

Most people age 70 ½ or older must cease utilizing their retirement plans as contributory vehicles and must begin taking annual distributions from them. In 2001, Congress greatly simplified the rules affecting plans RMDs. Here are several major provisions of retirement plans:

  • Individuals who own retirement plans (other than Roth accounts) must begin taking distributions in the year in which they attain age 70 ½.

  • The first distribution does not need to occur until April 1st of the year after turning age 70 ½. (However, electing to wait until the following year requires two distributions in that year).

  • All subsequent distributions must occur by December 31st. Do not wait until late December, your custodian may not be able to process your request in time.

  • Failure to take the RMD will result in a 50% penalty tax plus ordinary income tax.

  • RMDs are calculated by using the Uniform Lifetime Table factors and the previous year-end retirement plan valuation.

  • An individual with a spouse who is greater than 10 years younger may elect to use the Joint and Last Survivor Table and thereby reduce the RMD.

  • Individuals inheriting a retirement plan (IRA) are required to use the Single Life Table to calculate RMDs.

Qualified Charitable Distributions (QCD) from IRAs

Using QCD is a tax-savvy strategy that allows individuals who are at least 70 ½ to give up to $100,000 per year directly from their IRA to their favorite qualified 501(C)(3) charity(s). The distribution:

• Counts toward the Required Minimum Distribution (RMD)

• Is not subject to federal income tax

• Is not deductible as a charitable contribution

• Lowers both adjusted gross income and taxable income, resulting in lower overall tax liability

• Charitable gifts to private foundations or donor advised funds do not qualify

• Simple IRA, SEP IRA, 401k, 403b, and 457 Plans are excluded from QCD rules

By using the QCD, individuals may be able to meet the RMD requirement, satisfy charitable giving desires, and save money on taxes now and in the future. A further benefit of using this strategy is it

helps reduce Adjusted Gross Income (AGI). AGI determines how much Social Security is subject to income taxes, if an individual is subject to Net Investment Income Tax, and the amount of Medicare premiums in the following year.

Reminder: QCDs from your IRA must be requested by December 13 to ensure 2019 processing. Please note that IRA custodians are not required to report specific QCDs on the 1099-R form.

Individuals should notify their tax preparer of any QCDs performed.

Adding a Trusted Contact can help protect your assets

Reducing risk has never been more important, especially with fraud and financial exploitation

on the rise. In February 2017, the SEC approved the adoption of 2 new rules addressing Senior

and Vulnerable Investors: 1) FINRA Rule 2165 permits advisors to place temporary holds on

disbursements of funds or securities from the accounts of clients where there is a reasonable

belief of financial exploitation of these clients. 2) amendments to FINRA Rule 4512 require

advisors to make reasonable efforts to obtain Trusted Contact information for a client’s


Many custodians, including Charles Schwab and TD Ameritrade, have instituted policies to

comply with these new rules and have updated procedures to encourage clients to designate

a Trusted Contract for their accounts. Designating a Trusted Contact for your account is

optional but can be extremely beneficial.

When is a Trusted Contact notified?

  • To discuss activities or other red flags that might indicate you’re being financially exploited.

  • To confirm your mental or physical health status if there is reason to be concerned.

  • To confirm the identity of any legal guardian, executor, trustee, or holder of a power of

  • attorney.

It is important to note that a Trusted Contact cannot take any action on an account, is not

considered to be a beneficiary, and cannot view account information, unless specifically

authorized by the client. However, they can put a hold on disbursements if financial

exploitation is suspected. The ability to act quickly when addressing suspected financial

exploitation or diminished capacity situations, is critical in minimizing loss or damage.

Who should I designate?

When selecting Trusted Contacts, consider choosing people who are not already authorized

to transact business or receive information about your accounts. Family members or close

friends are often in the best position to know your current situation and provide assistance

when needed.

As a fiduciary, LVM Capital recognizes its obligation to protect you and your assets. We

have updated our procedures and policies to better serve our clients. We would like to

encourage you to provide Trusted Contact information so that we can help you reduce

your risk of fraud and financial exploitation.

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