6 IRA Moves to Take During 2023

The halfway point of 2023 has passed. This is a good time to plan how you’ll manage IRAs for the rest of the year. Don’t be like most people and scramble in November and December.

Here are some key steps most people should consider.

Donate via a QCD.

A qualified charitable distribution (QCD) is the best way to make charitable contributions when you are age 70½ or older.

You instruct the IRA custodian to distribute money or property directly to the charities of your choice. The distribution isn’t included in your gross income. It counts toward any required minimum distribution (RMD) you have for the year.

You can take QCDs up to $100,000 during the year.

Consider a Roth conversion.

This is an important tax and estate planning strategy for many of my readers. That’s why I regularly remind you about it.

The next few years are an important time to consider converting all or part of a traditional IRA into a Roth IRA, because income tax rates are scheduled to increase after 2025.

Another good time to consider a conversion is any time an investment in a traditional IRA loses value. You’ll be converting the assets at a lower value than a few weeks or months earlier, which means you’ll be converting them at a lower income tax cost.

Take RMDs from your traditional IRAs.

The first RMD now is required by April 1 of the year after turning age 73 for anyone who turned 72 after 2022. It will jump to 75 in 2033. Anyone who turned 72 before 2023 should be taking RMDs.

Too many people wait until near the end of the year to take RMDs. There are at least two problems with that.

Events might intervene to keep you from executing the transaction by Dec. 31. I recommend taking the RMD early in the year to be sure it is completed.

Also, many people don’t realize that IRA custodians become overwhelmed in the last few weeks of the year with transactions people procrastinated about all year.

Some custodians won’t take orders for RMDs and some other transactions late in the year. Others let you submit the orders but say they can’t promise to have them executed by Dec. 31.

Take RMDs from inherited IRAs.

The rules for inherited IRAs were upended after enactment of the SECURE Act in 2019 and were upended again in early 2022 when the IRS issued proposed regulations with several surprises.

You might be subject to the 10-year rule, which lets you take distributions in any pattern you want in years one through nine after inheriting, but mandate that the IRA be fully distributed by the end of year 10.

If the original owner of the IRA was taking RMDs, you must take annual RMDs during years one through nine and fully distribute the IRA by the end of year 10.

The RMD rules for inherited IRAs apply to both traditional and Roth IRAs.

See our May and June 2022 issues for more details about RMDs from inherited IRAs.

Consider new contributions.

There no longer is an age limit for making contributions to either traditional or Roth IRAs. You can make contributions at any age. But your contribution can’t exceed your earned income for the year from either a job or self-employment.

If you have some earned income this year, consider whether you want to add to a traditional or Roth IRA, up to the annual limit of $7,500 for anyone over age 50.

Plan rollovers.

There are many types of rollovers to consider, but there are at least two many people should consider. (A conversion of a traditional IRA to a Roth IRA technically is a rollover.)

If you have money in a former employer’s 401(k) plan, you might want to move those funds to an IRA using a tax-deferred rollover.

People with multiple IRAs of the same type might decide it is time to simplify their financial lives by consolidating into one IRA. This can be done through tax-deferred rollovers. It is best to have the rollovers done directly from one custodian to another so you don’t risk falling into one of the traps of the 60-day rollover rule.