Wealth planning

If you’re younger than 72 years old, you have flexibility on how much and from which accounts you take withdrawals from. Conventional wisdom is that you start with your taxable accounts, then switch to your tax-deferred retirement accounts, and leave your tax-free accounts for last. Additional strategies exist, but they should always be discussed closely with your tax-preparer and wealth management team to ensure they’re properly executed.

Under current tax law, the standard deduction was increased to $24,000 for married couples. Taxpayers who don’t itemize their deductions are limited to a $300 above-the-line deduction to receive a tax benefit (effective in tax years after 2019). Taxpayers who donate more than $300 but not enough to exceed the standard deduction need to consider alternative gifting strategies. A BMO wealth advisor can discuss options Contact us to discuss options with you.

There is a significant benefit in gifting stock in-kind rather than selling it and contributing the net proceeds. You avoid paying any tax due on the sale of the stock and if the charity sells the stock there is no tax since the charity is a tax-exempt entity. 

If the donation helps you itemize and you’re trying to offset windfall gains in the same year (e.g. the sale of your business), then all the better. Keep an eye on the rule that the current year deduction involving appreciated securities is limited to 30% of your adjusted gross income, but the excess can be carried forward to a future year.

If you named a trust as the beneficiary of your IRA and had thought the “stretch” provisions would enable your heirs to take RMDs based on their life expectancy, those rules are no longer in effect. 

IRAs must now generally be depleted within a ten-year period by a designated beneficiary. You can apply other measures to provide for your heirs, but don’t make decisions like this on your own. Consult a financial advisor who can assist and guide you through your options.