70+ IRA Contributions

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And today's show is 70-plus, and that has to do with our ages, which fortunately I'm not there quite yet, but 70-plus IRA contributions. And so, you know, when you think about the whole idea of contributions, it is, from a biblical standpoint, you know, very much a matter of sowing and reaping. And interestingly, I was praying this week asking God kind of what my role was in the current, I guess, state of the United States of America, based on all that's been going on. And he gave me this picture that had everything to do with plowing, like being yoked to a plow and going deeper in the earth, which, for me, I kind of interpreted that he was telling me to pray. And very specifically, when I looked at those words, as I would in the Hebrew, that what he wanted me to pray was the 68th Psalm. So if you're just wondering what's a really cool Psalm to pray right now in this season for this country, it has to do with God arising and strengthening the work that he had worked. And when you look inside that, that strengthening has to do with yoking yourself to this plow that's going to break up this hardened soil.

As you may know, he's all about getting the gospel in there. And in order to do that, it's going to take some plowing. And then, after that plowing, if you're going to sow something like we would with contributions into our IRA, there is sowing and there is reaping. But if you want to sow some good seed, right, it's way more important than just sowing because other seed could have weeds in it or whatever. Sow God's Word, right? It's the best seed you could possibly sow.

Oh, yeah. And so when we're talking about contributing into our IRAs, the seed that we're sowing obviously is important, but what soil are you putting it into, right? You know, if you're a farmer, if you grew soybeans in that field the last three years, it's not time to grow soybeans in that field again.

It's time to consider tobacco or corn or whatever cash crop you may be thinking about, but you've leached the minerals out of the soil of this particular thing. So the beauty of that, when I look at it from what we're going to talk about today with contributions is I really do feel blessed to have Hans as a friend because he is a disciple of God's Word, no doubt. Actually, he's in Hebrews right now. I know that and I love it. But he's also a disciple of this concept of sowing and reaping financially. And so I can remember my stepfather was a farmer and when he got out there on his tractor and he was sowing, that man was having fun because he knew what he was doing. He'd studied it. He knew what he'd done to the soil to prepare it. He knew the kind of seed he was sowing and he knew all these things.

And so he was having a blast to see how he could partner with God to make his crop grow. Well, this man I'm sitting next to, he understands this stuff about IRAs and minimum contributions and qualified charitable. He understands contributions. Okay.

Not only does he understand, but you can see that he loves this stuff and it makes his heart come alive to see these things grow the way that, you know, that God had intended in the idea of sowing and reaping. And so, as it were, you know, the whole Department of Agriculture slash our Congress has changed a bunch of the stuff on the way that we sow and reap when it comes to IRAs with these new acts. Oh, sure. I mean, the biggest change in several years that came through was actually in 2019. It's called the Secure Act. And that changed a number of things about the way you handle and manage and it changed the tax implications of a number of things. And then it didn't start till January 1st, 2020. And it wasn't but three or four or five months in that we had this thing called the CARES Act that was passed because of COVID-19 and the economy. And it was all – and that covered some things about IRAs but more about things in the economy and it had the PPP loans, the payment protection loans, the stimulus money. But it had a whole big section of IRAs. And it didn't really conflict with the Secure Act.

They're talking about the same things but in different ways. And the CARES Act was just a one-year thing for 2020. It pretty much ended.

Well, it didn't completely end because I got more extension of it. But in any case, what we're talking about today is the Secure Act and the effect that it's had on people 70 and over. Okay?

And you could say? Which has an effect on us that are taking care of people that are 70 and older. Well, yeah. And it has an effect on those of us that are 62 like me and I'm going to be 70 and over in eight years. And so I'm doing my planning constantly for what my IRA is going to provide for my wife and me after 70.

Okay? So this has an effect on everybody but specifically in the Secure Act, they did a few things. They said that your minimum distributions are now going to be required minimum distributions, RMDs. You can now wait until 72 to start those. You can start them much earlier and in different amounts but you don't have to start them until 72. That used to be 70 and a half.

Well, that's probably not news to everybody listening. But then they came along in the CARES Act and they said, oh, well, you don't have to take any minimum distributions in 2020. So now they let everybody wait another year.

Okay? And they did a bunch of other stuff. So I'm back on the Secure Act. So that was one big change is essentially for some people two years of delay. And this was done because people work longer now.

I mean, it just back then, back many years ago, it just wasn't an issue with people working. Why are we going to do something special for people working over 70? I mean, just they tell them retire and go home, you know, and just it's a different world now.

People are working much longer and enjoying it. And so they want to set up retirement plans to accommodate that. So you can delay RMDs or declare retired required minimum distributions by two years. They also the Secure Act said, if you're working past 70, you can now contribute to your IRA. And that's really what the title of the video and the title of the podcast and radio show that we're talking about today is you can now use to you couldn't contribute once you were 70 or 70 and a half or you could not make a contribution to your IRA. You could only make a distribution or you could roll over money, but no more contributions. Well, that's changed under the Secure Act. As long as you're working in them, you're qualified to make a contribution.

Doesn't matter what your age is. You can put up to the limits of even 90 and even 90. You can still make an IRA contribution. So now you're selling. So all you need is service income.

You need money from work. And if you got that, you can put up to the limits and that kind of thing. Well, then when I'm telling you about this, when we're preparing for the show, Robbie, you're saying, well, why would you want to? And my answer to that was because you want to increase your money in your account, which was kind of a flippant answer. But I figure that's why anybody that's why anybody would contribute to their IRA because they want to increase the balance. They want to have more money in there. You can't reap if you never so right.

Yeah, that's the deal. And so what what I really want to talk to specifically to those people that are over 70 and still working, you may not want to contribute. So even though I gave my flippant answer to Robbie is I rely on a gentleman by the name of Ed Slott, who's a CPA and he leads the IRA help dot com. And he's the guru. He's America's IRA. And so I attend two seminars a year and read all his stuff. And I really rely on him because he watches the IRS.

He's reading everything in his staff that's coming out of there. And anything that has anything to do with IRAs, pension plans, 401ks, just even the most minute thing, then he's applying that to everything. And so I, I read his stuff. And if something's important to him, it's important to me. And my people read it as well. And so what he's really saying is the reporter doing this article just asked him, say, Would you recommend to your clients to contribute to their traditional IRA over 70?

Even though the secure access and his was my recommendation is no, don't do it. Because now he didn't say that that's true for everybody. He's just saying my position is it's still too murky with the IRS. And there's, I'm not going to try to explain the detail of at that point.

I agree with him on the logic. I wouldn't do it because there's, there's another way. And the another way is just put it in a Roth. So an IRA, but it's, it's not one that you're not going to take a tax deduction, right? You're just going to put it in an IRA, but it's a Roth IRA, and it's going to be then tax free money. And so the reason he wouldn't put it in there is he's thinking that you could get into some trouble with the tax deductibility of it into a traditional IRA. So he's just saying put it in a Roth. You won't get the tax deduction, but you'll have the benefit of tax free money over in the Roth, even if it's just a $6,000 account. And then, you know, put the maximum that you can in there every year, as long as you're working past 70 and then you'll just have a Roth built up. Or if you already have a Roth, just put it in a Roth. That's right. So you are still sewing and your balance is getting bigger. And if you make too much money for a Roth, okay, you pass 70, you make too much money for a Roth. I didn't know you could make too much money.

Oh, yeah. If you make more than like $150,000 or something as a couple in like $100,000 or $90,000 as an individual, you make too much money for a Roth contribution. And then secondly, you make, or you just make too much money for a Roth contribution, but you could make a non-deductible IRA contribution. So you say you're not deducting it, but you're putting it in your IRA and then immediately, why don't you ask me the question you asked earlier? Why would you want to do that?

Yeah, why would I want to do that? Okay, why would I want to put money in my IRA if it's not deductible? Okay, well, you're going to get tax deferral on it.

Right. So that's kind of nice. And you're also going to be able to exclude the money that you put in there from paying tax on it again, because you put after tax money in there essentially. And so if you come to me, I can do what's called a backdoor Roth. So I can, after you make that non-deductible contribution, then I can help you convert it over to a Roth and now we've gotten around the income limit.

So there's a legally gotten around it. How fun, that's some fancy farm in there. So you're listening to certified financial planner, Hans Schile, and today's show is 70 plus IRA contributions.

Of course, you can find out all about IRAs there in Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, all there at cardinalguide.com. When we come back, more fancy farming with Hans. Thank you. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic group. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Welcome back to Finishing Well with certified financial planner, Hans Schile. And today's show is 70 plus IRA contributions.

Like, it's pretty cool. We've done some fancy farming here with Hans and ways that you can maximize or strengthen the way that you're sowing your seed now that we have this opportunity based on the Cures Act. And so why don't you kind of take us back into that concept. Well, the gist of this is the Cures Act passed a year and a half ago back in 2019 to take effect January 1st, 2020. It made provision for when you're older than 70 and you're still working, which covers a lot of people nowadays, even if it's a part-time gig or a small business or something, or it's just somebody keep working in their same job. It allows you if you're eligible, if you otherwise would be eligible to contribute to an IRA.

It used to be this was cut off at 70 and a half. So the secure act changed that. And I think the point we wanted to make is just because the secure act lets you do certain things that it didn't let you do beforehand.

That doesn't mean you want to do well. So that's where some people can get mixed up. Even people doing my job as a whoopee, we can do this now. So we better go ahead and do it.

Let's just do it all because of the secure act tells us this is going to be good. No, that's not what it says. It just says you could do this. You need to make a decision to either do it or not. And so our whole point with there's still some, the IRS come looking and ruling on some certain things, put some murkiness that you could face some trouble taking an IRA deduction at this point for service work past 70. So, you know, if it's me… So clarify that in English, you know, for me. And I may not make it any clearer than, you know, but I'm just trying to get it in my mind.

So one of the reasons I'm going to contribute to this IRA is to lower my tax income, you know. How old are you now? I'm 65.

But in your example… Right, if I was 70 plus. Okay. And I was taking this, right? And I was going to make this contribution, which would lower my income, taxable income. Right. And there's the deal. So part of the reason I'm doing that is not just to increase my balance, but actually to get a tax benefit from this tax year based on that contribution.

However, what you're saying is and Ed Slott is saying is not so fast there, Robbie. They're saying you contribute the money, but they're not so sure whether or not it's going to really… If you just read the stuff when the law came out and you even listened to me a year ago, I said, great, work past 70, contribute to the IRA. What happens after these laws are passed is that the Congress and the news media, they're going to call Grandstand and go, hey, secure act. You can do this. You can't do this.

You can do this. And so the assumption is, man, we need to get on this, get on these contributions. But then people actually start doing these kind of things and consumers and taxpayers and they go to their accountants and they say, yeah, I read the secure act. The accountant read the thing and say, yeah, we're doing this. And then somehow the IRS has got a rule or people ask the IRS to say, well, how does this work? And when you got people past 70 contributing, they're also making distributions. And so now you're getting into are you contributing and then distributing in the same year? That's why they had the old law. It's still murky whether that's all going to work out great for you tax wise.

Now, maybe in a year I'll be or even six months I'll be reversing what I'm saying. But for this point, as I agree with Ed Slott, I think it's just not that big of a deal. I'm recommending that my clients just don't do it or they hold off perhaps. Or use a different strategy.

Or use a different strategy. The Roth or the backdoor Roth. Well, or the Roth or the backdoor Roth. So you can put the same amount of money in a Roth if you qualify the secure act's letting you do that, but you're not taking the tax deduction for it because the Roth is after tax money. So that's one solution.

And I think we've pretty much beat that horse down. So just, you know, if somebody specifically out there has a question, just call me up and then I'll give you a specific opinion as it relates to you. I'm just kind of giving general guidance here. The second thing that we wanted to bring up is if you're over 70 and you've got money in a traditional IRA or you actually have to be over 70 and a half by the end of the year. Okay, it's still a little bit weird that you are eligible to do the QCD, which is a qualified charitable distribution. And you can do that up to $100,000 in any given year for any given IRA holder. So if you're the only one in your family that has an IRA, you can give a substantial amount of money out of your traditional IRA directly to a qualified charity. And it's certainly a church or missions or, you know, as long as they're a qualified charity, you can give the money directly from your IRA to the charity.

And it'll count as a minimum distribution, which you don't need at 70, but you certainly need it at 75. It'll go directly to the charity, which is the church, if that's the case here. And it'll never show up on your tax return. Right. So here you got this money. You never have paid income tax on because it's in a traditional IRA. And let's say you want to give to the Christian car guys, Jesus, labor, love, shameless plug there for single mom's widow.

Does it need car repair? Right. This time of year, we've got a lot of people that need that. So, but essentially they're the money that they would use.

They got a distribution to make. They make a distribution, qualified charitable distribution and just be aware. Don't try this at home on your own.

Okay. I mean, or read the rules if you're going to try it at home. One of the things has got to be done your first distribution. It's got to be your first distribution out of the IRA for any given year.

And so if you turn 70 and a half this year, then you qualify. You need to do it now because if this is your second distribution, if you just pull some money out because you need it, and then later in the year say, I want to give some to the qualified charitable distribution, that won't work. This needs to be the first distribution of the year. That's not saying you can't do others later, but it needs to be the first distribution of the year. Okay.

So am I following you again? If you do make your first distribution of qualified charitable distribution, then you make another distribution to money you need. Then you can come back later in the year and make another qualified charitable. You got to wait till the next year.

Got to wait till the next year. Okay. You can only make one. I mean, you could send qualified charitable distributions to several charities, so you could have six distributions all done at the same time.

That'll be fine. But it needs to go directly to the organization, and it never shows up on your tax return. If it does show up on your tax return, we've got problems because we're going to have to account for it and pay taxes, and then we're going to have to—so you don't want that to happen.

So it needs to be the first distribution of the year. It needs to go straight from you to the charity. And you want to use traditional IRA money. Now, I'm not saying don't give your Roth IRA money to the church. I'd rather have you—but you're not going to get a deduction. I mean, you're not going to get any tax benefits. So if you're going to play that game, I'd rather you distribute the IRA tax-free and then just give your money to the church and then take a tax deduction. So the whole beauty of this is giving money, the charity gets the money. They don't pay any tax on it. You never pay any tax on it. And you're also giving money in such a way that you're getting essentially the full tax deduction because it doesn't work that neatly for a lot of people doing your taxes under the new tax law. They give money. They think they're still getting a tax benefit, but they're really not because they're using the standard deduction. This is a way out of your IRA that you can make it where you get the full tax benefit of the contribution. Right. And then there's the whole concept of, with these IRAs, of having beneficiaries. You were talking—you wanted— Oh, sure. I mean, the whole concept that I want to get across to people, it's really a big part of my, let's say, calling, is that most people are only focused on the investment and the growth of their account in their 401K or IRA. And that's kind of it. And what I want to lead you to get focused on is that's one thing that's important.

And, you know, the balance and the bigger we can make it, the better it's going to be. But now I want you to get focused on, when I get to retirement, how am I going to distribute this money based upon my needs? So how much income do I need? And then how am I going to distribute it in such a way that I don't run out of money at 77 and I still got several years to leave? So once we start distributing, we want to look at the distribution in terms of, I don't want to have any one or two years where I pull out a lot because it's going to drive my tax bill nuts. But I also want to look at how much tax am I going to pay over my whole lifetime once I start distributing? And then I want you to look at the estate planning ramifications of your IRA.

Because a lot of people just sit there, oh, I'm going to give that to my daughter. That's their estate plan. I got her named as the beneficiary.

Okay, good. And that may just well work out great. But I'm going to tell your daughter, if she's much younger than you, which she obviously is by definition, and then you pass away, the only way she can get at that money is to draw it out of the IRA. And what happens with that? Taxes. And so there's a whole lot of people that inherit IRAs who inherit them. And then, you know, let's just say it's $200,000 and your daughter's normal income is $60,000 a year. Well, then if she cashes out that whole IRA to go buy something, her taxable income in that year is going to be $260,000.

And a lot of that doesn't even faze a younger person because they had nothing before. You're deceased. This is their inheritance. They say, what's the tax bill? And you say, oh, it's going to be $80,000. So you won't really get $200,000.

You'll get $120,000. They say, write me a check. And so, you know, we talk about – and just the point I wanted to make here at the end is check your beneficiaries on everything. But let's start with your IRA and your 401K.

Check the beneficiaries and just see if you have listed exactly who you want to get that money because that's all they're going to go by. Yeah. So when I set up my 401K, a true story. You know, I had two kids.

I never added the third one. And when you started mentioning this, I was like, uh-oh. You know, I hadn't even thought about it. But, you know, these things change. And so, you know, on all your life insurance policies, all these things that have beneficiaries, which are really, really handy, even your bank account, if you get transferred on death, you've got a beneficiary.

If you talk to your bank about that, it will bypass probate. But, again, these things change over time. Surely do.

And they have to be checked regularly. Surely do. So, again, we enjoyed talking with you today on, you know, 70-plus contributions to your IRA. And all this, of course, is in Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, found at cardinalguide.com. And don't forget the guide after cardinal.com.

And so, again, really fun, Hans. Thanks. Thank you. We hope you enjoyed Finishing Well, brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on The Finishing Well radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.