2018 Year-End Planning Strategies

December 7, 2018

2018 is almost over, and year-end tax planning is here! What might make sense for your clients' overall financial picture?

Back on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (TCJA). Many experts believe this will be the most sweeping change to the U.S. tax code since 1986. There are a few provisions of the TCJA that your clients can consider before the year is over that may help their overall financial picture. Here are four planning strategies that you may find useful to share with clients.

Help a Charity and Take RMDs through a Qualified Charitable Distribution (QCD)

Taxpayers who are age 70½ or older, own an IRA (traditional or inherited IRA, or inactive SEP or SIMPLE IRA), and do not need their required minimum distributions (RMDs), may want to consider making charitable donations through a QCD. The TCJA increased the standard deduction to $24,000 for a married couple filing jointly; therefore, many taxpayers will not itemize their deductions, which makes a QCD more appealing as it does not require a taxpayer to itemize, unlike regular charitable contributions, in order to realize a benefit. A QCD will count toward satisfying their RMDs for this year, and neither the taxpayer nor the charity will have to pay income taxes, which is unlike regular withdrawals from an IRA. A QCD is a direct transfer of funds from an IRA payable to a qualified charity.  In addition to the benefits of giving to a charity of choice, a QCD is excluded from a taxpayer’s modified adjusted gross income (MAGI), which may help reduce the likelihood that Social Security retirement benefits will be subject to taxation and the tax payer paying higher Medicare premiums relating to parts B and D.

Plan for Tax-Free Income through a Roth IRA Conversion

IRA owners should work with their advisors and evaluate the impact of a Roth conversion under the lower tax rates that apply to most after the TCJA was passed. If a taxpayer is concerned about future tax-rate increases, a Roth conversion could be a good solution to complement their future retirement income needs. Remember, Roth conversions are taxable in the calendar year the conversion takes place.

Qualified tax-free distributions are one of the greatest benefits of a Roth IRA. For qualified distributions, both of the following must be satisfied:

  1. It must be five years since the Roth conversion took place (or when the Roth IRA was established through contributions).
  2. The Roth IRA owner has experienced any of the following:
    •  Attained age 59½
    •  Became disabled
    • Died

Lastly, should a taxpayer change his or her mind after executing a conversion, remind your client that Roth conversions made on or after January 1, 2018, can no longer be recharacterized back to a traditional IRA.  

Clients Can Make a Charitable Donation if Planning to Itemize Deductions

There is good news for taxpayers who are charitably inclined and interested in making charitable contributions directly to a charity. A taxpayer can still make the contribution, take an income-tax deduction, and remove the contributed assets from taxable income. Specific provisions of the TCJA left the deduction for donations to charities intact. Your clients should work with their advisors regarding specific limits for the donation amount allowed.    

Conduct a Beneficiary Review if Clients Experienced New Life Events

If you have clients who were married or divorced, had a birth (child and/or grandchild), or a death in the family in 2018, now would be a good time to review the beneficiaries listed on all their assets. Naming primary and contingent beneficiaries will ensure their assets will pass to those they wish to receive them should they pass away.

While planning strategies should occur year-round, now may be the time to work with your clients and their tax advisors to determine if any of the above planning strategies make sense.


For additional information about these planning strategies, please feel free to contact us at (800) 722-2333 or email us at RSG@PacificLife.com.



Picture of Steve Chmelka

Steve is a Senior Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. He brings more than 25 years of industry experience in financial planning and wealth management, including detailed knowledge of both employer-sponsored retirement plans and retirement-planning strategies.

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