Retirement Account Checkup
As 2025 begins, it is a good time to connect with your advisor to make sure all your accounts and personal information are accurate and up to date and align with your personal goals and values. This overview touches on key points to consider when evaluating your retirement accounts.
Is this your first year you are required to take an RMD?
Required Minimum Distributions, or RMDs, are the required minimum amounts that you must withdraw from certain retirement accounts once you reach a specific age. Starting age for taking RMDs is determined by your birth year. If you were born between 1949 and 1950, RMDs began at age 72. If you were born between 1951-1959, RMDs begin at age 73. If you were born in 1960 or later, RMDs start at age 75. Retirement accounts such as IRAs, SEP IRAs, Simple IRAs, and 401(k), require RMDs. RMDs are mandated by the IRS and must be paid by the end of the year. If it is the first year you are required to take an RMD, it may be delayed until April 1 of the year after you reach RMD age. There are several different ways to satisfy your RMDs for the year.
Consider QCDs as part of your RMD strategy
Qualified Charitable Distributions, or QCDs, are a way to fulfil your RMDs by giving to charitable causes. One reason satisfying your RMDs with a QCD is beneficial is that the amount you donate through a QCD is excluded from your taxable income. Reducing taxable income is especially beneficial if the amount of the charitable distribution would push you into a higher tax bracket. There are a few eligibility rules to consider regarding making QCDs. They may be made from traditional IRA accounts and certain inactive SEP or Simple IRAs. A qualified individual may donate up to $100,000 annually directly from one of these accounts. And to be eligible to make a QCD, an individual must be at least 70½ years of age, no matter your RMD eligibility age. Making QCDs is a tax-effective method to satisfying your required minimum distributions while benefiting an organization that aligns with your values. To learn more about how you can make a QCD, contact your advisor today.
Are you eligible to contribute to an IRA or Roth IRA?
When checking up on your retirement accounts in the new year, consider if you are eligible to contribute to an IRA or Roth IRA. There are several eligibility requirements for both individual retirement account types to consider.
Traditional IRA Contribution Eligibility
For both Traditional and Roth IRAs, having earned income is a requirement. Earned income can take the form of wages, salaries, tips, or self-employment income. For Traditional IRAs, a non-working spouse may contribute to the account through a spousal IRA if the couple files taxes jointly. If an individual has earned income, they may make contributions to a traditional IRA, regardless of their age. If an individual is under 50 years old, they may contribute up to $7,000 annually, and up to $8,000 annually if they are older than 50. Those over 50 are eligible to make a “catch-up” contribution of $1,000, which is included in that $8,000 maximum.
Roth IRA Contribution Eligibility
As with a Traditional IRA, an individual may contribute to a Roth at any age if they receive some form of earned income. Contribution limits for Roth IRAs are the same as those for Traditional IRAs: $7,000 if you are younger than 50 and $8,000 if you are older than 50. One way Roth IRAs differ from Traditional is that there are fixed income limits for contributions. For a given year, thresholds for single and married filers are based on modified adjusted gross income. If your income exceeds these thresholds, you are unable to contribute directly to a Roth IRA.
For both Traditional and Roth IRAs, contributions for the current tax year may be made until the tax filing deadline. Contributions that exceed the allowed limit are subject to a 6% penalty unless corrected in a timely manner.
Do you have old IRA accounts to consolidate or roll over?
Consolidating accounts helps simplify management and reduces associated fees. When reviewing your retirement accounts in the new year, consider whether you have old accounts that can be consolidated or rolled over. The consolidation process is a great time to reevaluate investment strategies and make updates needed updates to reflect major life changes that have altered your financial goals.
There are several different types of rollovers. A direct rollover transfers funds directly from one account to another. In this type of rollover, no taxes are withheld, and you are not at risk of penalties. You may use a direct rollover to move funds directly from a 401(k) to a traditional IRA.
With an indirect rollover, the account holder receives a check for the existing account balance and must deposit the check into a new retirement account within 60 days to avoid penalty. In this type of rollover, the plan administrator withholds 20% of the distribution for taxes.
A trustee-to-trustee rollover is like a direct rollover and is just what it sounds like: moving funds between trustees. This type of rollover is most often used for IRA-to-IRA transfers.
To discuss which rollover options are available to you, schedule a time to meet with your advisor.
Each of these topics is important to consider when reviewing your retirement accounts in the new year. Your financial advisor is here to help make your financial goals a reality and wants to be with you every step of the way. Contact our office today to continue the conversation about how your retirement accounts can best reflect your goals and values!
The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC.