Parable Financial Network

Parable Financial Network
Jan Clark
501 Gloucester St
Suite 205
Brunswick, GA 31520
912-387-0111
jan.elkins@parablefinancialnetwork.com
www.parablefinancialnetwork.com

MARCH into Spring-Newsletter

Isaiah 43:19 NIV says, "See, I am doing a new thing! Now it springs up; do you not perceive it? I am making a way in the wilderness and streams in the wasteland."

Sometimes in order to come into a new season and spring forward in faith, we have to let go of the old season. Isaiah 43:18 NIV says, "Forget the former things; do not dwell on the past." One of the many lessons life teaches us is to let go. We can't hang on to past hurts, past struggles, and past relationships. And, sometimes this means we have to give ourselves time to grieve in order to move forward. We may have to let ourselves feel the loss, be sad for a little while, and talk to someone who cares. After we've grieved, we can pick ourselves up and start looking ahead once again.

As spring starts to surface and the trees begin to bloom, we can see God’s reminder to align our hearts to the new thing He’s doing. Let us go to prayer, asking Jesus to help us embrace all the “new” he has in store for us.

Spring Cleaning?

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Save Now or Save Later?

Most people have good intentions about saving for retirement. But few know when they should start and how much they should save.

Sometimes it might seem that the expenses of today make it too difficult to start saving for tomorrow. It’s easy to think that you will begin to save for retirement when you reach a more comfortable income level, but the longer you put it off, the harder it will be to accumulate the amount you need.

The rewards of starting to save early for retirement outweigh the cost of waiting. By contributing even small amounts each month, you may be able to amass a great deal over the long term. One helpful method is to allocate a specific dollar amount or percentage of your salary every month and to pay yourself as though saving for retirement were a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).*

This example makes a strong case for an early start so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest, and so does your reinvested interest. This is a good example of letting your money work for you.

If you have trouble saving money on a regular basis, you might try savings strategies that take money directly from your paycheck on a pre-tax or after-tax basis, such as employer-sponsored retirement plans and other direct-payroll deductions.

Regardless of the method you choose, it’s extremely important to start saving now, rather than later. Even small amounts can help you greatly in the future. You could also try to increase your contribution level by 1% or more each year as your salary grows.

Distributions from tax-deferred retirement plans, such as 401(k) plans and traditional IRAs, are taxed as ordinary income and may be subject to an additional 10% federal tax penalty if withdrawn prior to age 59½, unless an exception applies.

TaxWise Strategies

We've put together a library of articles with helpful information on tax management strategies. Simply click on a topic.

• What Is the Capital Gain Tax?
• What Is the Estate Tax?
• What Is the Gift Tax?
• How Much Money Can I Put Into My IRA or Employer-Sponsored Retirement Plan?
• What Is a Required Minimum Distribution?
• What Are the Tax Benefits of Charitable Trusts?
• When Must Taxes Be Paid on IRA and Employer-Sponsored Retirement Funds?
• What Happens If I Withdraw Money from My Tax-Deferred Investments Before Age 59½
• What Is Tax Deferral?
• How Can I Benefit from Tax-Advantaged Investments?
• What Tax Deductions Are Still Available to Me?
• What Tax-Advantaged Alternatives Are Available?
• What Is the Most Tax-Efficient Way to Take a Distribution From a Retirement Plan
• Is There Such a Thing as a Tax-Free Investment?
• How Can I Keep More of My Mutual Fund Profits?
• How Can I Upgrade My Insurance — Tax-Free?
• What Is the Tax History of the United States?
• Federal Income Tax This calculator can help you estimate your annual federal income tax liability.
• Tax-Deferred Savings Compare the potential future value of tax-deferred investments to that of taxable investments.
• IRA Eligibility Use this calculator to determine whether you qualify for the different types of IRAs.
• Roth IRA Conversion This calculator can help you determine whether you should consider converting to a Roth IRA.

Donating to Charity Using Money From an IRA

Money from an individual retirement account (IRA) can be donated to charity. If you've reached the age where you need to take required minimum distributions (RMDs) from your traditional IRAs, you can avoid paying taxes on the money by donating it to charity.

Tax breaks on charitable donations cannot be combined with the tax break on retirement savings.

Donations made from an IRA can meet all or part of the IRA’s required minimum distributions for the tax year.

A distribution from a traditional IRA normally incurs taxes since the account holder didn’t pay taxes on the money when the money was paid in. But account holders aged 70½ or older who make a contribution directly from a traditional IRA to a qualified charity can donate up to $100,000 without it being considered a taxable distribution. The deduction effectively lowers the donor's adjusted gross income (AGI).

Donors must follow the IRS rules for qualified charitable distributions (QCDs) to avoid paying taxes on the donation. These are called charitable IRA rollovers.

Most churches, nonprofit charities, educational organizations, nonprofit hospitals, and medical research organizations are qualified 501(c)3 organizations. The charity will not owe taxes on the donation.

This tax break means the donor can't claim the donation as a deduction on Schedule A of their tax return. But most taxpayers probably won't itemize their deductions on the form, especially since the Tax Cuts and Jobs Act (TCJA) increased the standard deduction. 

A required minimum distribution (RMD) is an amount of money that a taxpayer must withdraw from certain retirement accounts, including IRAs, every year. The minimum age has been bumped upwards a couple of times but it is 73 as of Jan. 1, 2023.

The same revision decreased the penalty for failing to take an RMD but it's still hefty: 25% of the remaining balance in the account.

Any donations made directly from an IRA can meet all or part of the IRA’s RMDs for the tax year.

The charity must receive the donation by December 31 for the amount to be applied to that year’s tax return.

QCDs are a good choice for individuals who otherwise could not deduct all or part of their charitable donations because of the IRS rule prohibiting a deduction for amounts that exceed 60% of a taxpayer's AGI.

There are some added benefits to naming a charity (or charities) as a beneficiary and donating funds from your IRA after your death rather than doing so while you're still alive. Not only can you choose to allocate specific percentages to your heirs and charities, but you can also use the funds to provide financial support to the causes that are near and dear to you. If you choose to roll the entire balance of your account over to a cause, that charity will get the full benefit.

If you choose to make a donation through your IRA to a registered charity, you must report the transfer. An IRA trustee must use IRS form 1099-R to report the QCD on an account owner's annual tax return.

Owners should also keep records of the donation date, the account from which the donation came, the amount that was given, and the charity that received the donation.

Validating the deduction also requires a receipt from the charity stating that the donor received no goods or services in exchange for the contribution. The amount of the donation is reduced by the value of any goods or services received in exchange, and that part of the donation will be taxable.

Traditional IRA distributions are treated as taxable income, which means you will owe taxes on the amount you withdraw from your account. The same rule, though, doesn't apply to charitable donations. The IRS allows you to use required minimum distributions from your IRA as qualified charitable distributions on a tax-free basis. But keep in mind that you can't claim a tax deduction for the amount donated.

Donating from your IRA as a qualified charitable distribution means you won't pay any taxes on the amount donated the same way you would if you took a required minimum distribution as income. But you won't be able to claim the amount as a deduction on your annual tax return.

You can begin making qualified charitable distributions from your IRA as soon as you turn 70½. Keep in mind that any QCDs that are generated from your IRA must be limited to amounts that would be taxed by the IRS as ordinary income.

You can make qualified charitable distributions to any 501(c)(3) organization. These are the only groups that can receive tax-deductible donations. Those that don't qualify are private foundations and donor-advised groups.

Using an IRA to make a charitable donation can help lower a tax bill and help a worthy cause. Distributions must be made directly to the charity, not to the owner or beneficiary. All distribution checks need to be made payable to the charity or they will be counted as taxable distributions.

Don't forget to visit our website www.parablefinancialnetwork.com and also like us on .

Blessings to each and everyone!

Joey Cason, Paul Walker, Thomas Barnes, Patrick Owens and Jan Clark