Advising Clients on IRA Contributions After Age 70½

QCDs and Traditional IRAs 

Some of your clients may divert a portion of their RMDs into qualified charitable distributions (QCDs). For those who are charitably inclined, this can be a tax-efficient way to make charitable contributions, especially for clients who are not able to itemize deductions on their tax return. 

"The tax deduction for traditional IRA contributions is nice, but it's important to understand that if your client plans to use those IRA assets to make future QCDs, those post-70½ contributions cannot be claimed as part of a QCD," Tyler Aubrey, CFP of Define Financial says. "If a QCD is made, the post-70½ contributions are treated on a last-in-first-out (LIFO) basis, meaning their QCDs will have less of an impact right out of the gate until all of their post-70½ contributions have been withdrawn from the IRA." 

Tax Planning

There are a number of tax and financial planning considerations in advising clients on IRA contributions after the age of 70 ½, including: 

• The client's current and anticipated future tax bracket. This will help determine whether a Roth or traditional IRA contribution makes the most sense.
• Tax diversification in terms of their retirement savings. If they are heavily invested in traditional IRA and 401(k) accounts, it might make sense to divert contributions to a Roth IRA to diversify their retirement tax base a bit.
• Roth IRA funds are not subject to RMDs and can have tax advantage for non-spousal heirs under the Secure Act. Both features can be woven into your client's estate planning. 

As many of your clients continue to work after age 70 ½, IRA contributions can make a lot of sense. They will need your help in determining the best strategy for their situation. 

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Roger Wohlner is a financial writer with over 20 years of industry experience as a financial advisor.