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IRA contributions by the elderly



I have read that the age limits on IRA contributions have been removed.  I’m 71, so does it really make sense for me to make an IRA contribution now?   RETIRED SAVER



Probably not, but more of your financial information is needed to be certain.

The tax benefits for IRA contributions are greatest for those who can leave the money untouched for the longest, who gain the most tax-deferred compounded account growth.  You will have to begin your Required Minimum Distributions next year, so a portion of what you defer this year will be coming right back to you.

However, if you are confident that your tax bracket is higher this year than it will be in the future, the income tax deduction for your IRA contribution could make it worthwhile.  But keep in mind that you must have earned income to make any IRA contribution—interest income, dividends, and capital gains do not count.  

We would be pleased to have an in-person meeting to tell you more.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

The IRS is catching up

The effect of the Covid-19 pandemic upon the supply chains and prices has been much commented upon.  Less well known is that the pandemic caused the development of a major backlog at the IRS.  As of the end of August this year, some 8.2 million individual tax returns remained unprocessed.

But according to a November update, major progress has been made.  The number of unprocessed returns has been cut to 4.2 million.  “These include tax year 2021 returns and late filed prior year returns. Of these, 1.9 million returns require error correction or other special handling, and 2.3 million are paper returns waiting to be reviewed and processed.

There are also an estimated 900,000 unprocessed amended tax returns in November, filed on Form 1040-X. They are processed in the order received, and processing can take up to 20 weeks, the IRS reports.  Taxpayers may get status reports on their amended returns by going to “Where’s My Amended Return?” at the IRS website [].

All this progress is welcome, but a whole new tax season is about to begin.  The major additional funding for the IRS enacted by Congress earlier this year may help to alleviate such problems and reduce delays in the future.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

“Lightning in a bottle”?

Earlier this year, Fidelity Investments made news with the announcement that they would make investing in the digital currency Bitcoin one of the investment choices available to 401(k) plan participants. Bitcoin has been classified as property, not money, by the IRS.  As such, there is no legal restriction on investing retirement funds in it.

At least that is true at the moment.  Three U.S. Senators wrote to Fidelity’s President last July, asking that the offering be rescinded, because such an investment was thought to be too risky.  They followed up with a November letter renewing the request.

The most important recent development causing concern was the collapse of FTX, a digital currency exchange, with losses to millions of clients that may reach billions of dollars.  The Senators also noted in their letter that the value of Bitcoin had fallen from $21,239 when the first letter was written to a two-year low of $16,884.

The letter concluded: “In light of these risks and continuous warning signs, we again strongly urge Fidelity Investments to do what is best for plan sponsors and plan participants—seriously reconsider its decision to allow plan sponsors to offer Bitcoin exposure to plan participants. By many measures, we are already in a retirement security crisis, and it should not be made worse by exposing retirement savings to unnecessary risk. Any investment strategy based on catching lightning in a bottle, or motivated by the fear of missing out, is doomed to fail.

Greater government regulation of the digital currency market now is expected by many, in view of recent developments.  Such regulation could extend to limits on such investments in qualified retirement plans.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

Update on donor-advised funds

Taxpayers generally welcomed the rough doubling of the standard deduction in the 2017 tax reform legislation.  One group that was worried about unintended side effects of the change was the nonprofit sector.  The larger standard deduction coupled with the cap on the deduction for state and local taxes meant that most taxpayers would no longer get any tax benefit for their charitable gifts. 

The worries turned out to be unfounded, as total charitable giving has not declined.  Most people give to charity for philanthropic reasons, not to get tax benefits.  However, there was a related side effect, and that has been a boom in donor-advised funds.

The idea behind a donor-advised fund is that money is permanently set aside for charity in the fund, but the charity may not yet be specified.  A full tax deduction may be allowed in the year of the contribution to the fund, while the disbursements to charity take place over the subsequent years. Note that the advice that the donor makes to the fund about the charitable beneficiary in subsequent years is not binding, but the fund will typically follow the wishes of the donor.

The tax strategy that this suggests is to bunch charitable deductions.  One year the taxpayer doubles up on charitable gifts and itemizes deductions, while the next year no such gifts are made and the standard deduction is taken instead.  When the large gift is made to a donor-advised fund, the receipt of the money by the charity is deferred.

A recent report from the National Philanthropic Trust documents the success of donor-advised funds [].  Key metrics:

  • The number of accounts in donor-advised funds rose from 1,007,745 in 2020 to 1,285,801 in 2021, an increase of 27.6%
  • Assets held in these funds grew 39.5% from 2020 to 2021, from  $167 billion to $234 billion.
  • Total transfers to charities by the funds in 2021 were $45.74 billion, a 27.3% payout rate.  This was a 12.7% increase over the 2020 payout rate.
  • Private foundations hold some $1.3 trillion in assets, about five times larger than the donor-advised funds.  Yet the total grants by private foundations came to only  $96.27 billion, about double the total grants from the donor-advised funds. (Private foundations are only required to distribute 5% of their assets annually to charity). 

The report concluded with a prediction of slower growth for donor-advised funds, in part as a response to financial market volatility in 2022.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

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