Merriman INSIGHT – Using Qualified Charitable Distributions to Maximize Charitable Gifts

On December 18, 2015, the president signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015. One of the popular tax provisions in this bill was to permanently extend the ability for IRA owners to make qualified charitable distributions (QCD) from their IRA to a qualified charity of their choice. Prior to the PATH Act, this provision expired multiple times since its debut in 2006, only to be temporarily extended by Congress each time, often at the last minute or retroactively. This uncertainty made charitable planning more difficult, but now we finally have clarity!

For those who are charitably inclined, a QCD can really maximize the effectiveness of charitable gifts.

Here’s how it works

IRA owners who are 70½ or older and would otherwise have to satisfy a required minimum distribution from an IRA may donate any portion up to $100,000 of the required distribution directly to qualified charity. The IRA owner can exclude the amount of the QCD from his or her gross income (thereby reducing their adjusted gross income), but any donation made via a QCD is not eligible for a charitable deduction. From a tax perspective, an exclusion from income is preferable over a deduction from income — particularly for those who don’t meet the itemized deductions threshold in the first place.

As with many IRS provisions there are a number of fine print items to keep in mind.

  • You’re only eligible to make a QCD if you are 70½ or older.
  • Contributions can only be made to 501(c)(3) charities and 170(b)(1)(A) organizations.
  • Donor advised funds and private non-operating foundations are not eligible to receive QCDs.
  • The QCD must be made directly from your IRA to the desired charity, meaning the check issued from your IRA must be payable to the organization. If the check is made payable to you, then it counts as taxable income and will be considered a normal IRA distribution.
  • The QCD can be made from any IRA. SEP and SIMPLE IRAs are only eligible if they are not receiving employer contributions in the same year as the QCD is made. You cannot make the QCD from any employer retirement plans, such as a 401(k), 457 or 403(b), etc.
  • The QCD cannot be a split-interest gift, meaning 100% of the gift must go to a single charity and the gift cannot be shared with the donor or any other designee of the donor (for example, Charitable Remainder Trusts or Charitable Lead Trusts would not qualify). The donor cannot receive any economic benefit as part of the gift.

If you are interested in making a donation directly from your IRA to a charity, please reach out to your advisor to get started and make 2016 a year of giving!

Small Incentives Can Have a Big Impact

“Give your kids enough to do anything, but not enough to do nothing.”

investment philosophyWith the distractions and commitments kids have these days, it can be hard to find the right time and the best way to teach good money habits. Whether it’s learning simple budgeting skills or the benefits of saving for a long-term goal such as retirement, there is never a better time to start.

Just consider the impact of a kid investing $1,000 at age 12 versus waiting 10 years until after graduating from college. If the funds are to be used in retirement 50 years later and grow at a 8% annual rate, that $1,000 initial investment would grow to $46,901 with 50 years of compounding, versus $21,725 with 40 years to compound. The additional 10-year investment horizon for the 12-year-old leads to a greater than 50% increase in accumulated wealth due to the power of compounding.

Even though the benefits of starting to save and invest early are apparent, it can be difficult for a kid to understand the consequences of waiting to save for a car, house down payment or retirement when these obligations are far in the future. Providing small incentives can often bridge this gap. To teach kids a lifelong lesson, you can create a system of dollar-for-dollar matching of contributions to savings, matching a certain percent or even contributing on their behalf, to incentivize them to participate in school activities like debate club, student government, or choir. As a parent, you will in essence be providing an employer-like match on their contributions.

Savings account

Once your kid understands the basics of budgeting and why they should spend less than they take in, it’s time to open a savings account. You could help your child open the account online, but going to the bank may give them the best learning experience. A personal banker can help them open the account, and they can learn how to deposit and withdraw money, and then record those transactions.

After opening the savings account you can start offering small incentives, whether it’s contributing on your child’s behalf for good grades in school or paying them for chores around the house.

Roth IRA

There’s no minimum age for opening and contributing to a Roth IRA, as long as the minor has earned income from a job that issues a W-2 or 1099-MISC. An allowance for cleaning their room doesn’t count as earned income! For 2016, the most they can contribute to a Roth IRA is either $5,500, or their earned income for the year – whichever is smaller. A parent or guardian needs to be listed on the account until the child is no longer a minor.

If your kid has any amount of earned income during the year, a contribution to a Roth IRA provides tax-free growth and withdrawal in retirement. If your kid earns $600, you can match anything they contribute dollar for dollar, which can help incentivize them to contribute, say, half their earnings. So if they contribute $300, they receive $300 free money from you. The $300 they have left over can then be used on whatever they want!

Roth IRAs for minors can be opened at discount brokerages like Charles Schwab, TD Ameritrade, Vanguard or Fidelity.

Brokerage account

If your kid doesn’t have earned income to contribute to a Roth IRA, investing through a taxable brokerage account can provide many of the same benefits. Similar to a minor Roth IRA, a brokerage account needs to have a custodian, such as a parent, listed on the account until they are 18 or older, depending on the state the account is opened in.

This type of account provides more flexibility for withdrawals than a retirement account, and there’s no limit on the amount that can be deposited. These funds can be invested toward goals like saving for a car in the future, a house down payment or even to supplement retirement savings. A similar incentive system would work in this case.

In most cases, you can open this type of custodial account online at discount brokerages like Charles Schwab, TD Ameritrade, Vanguard or Fidelity.

Encouraging good savings habits and educating children on the power of compound interest will result in significant long-term benefits, both personally and financially. More importantly, it will help reduce their chance of encountering a shortfall in savings when it comes to their most important goals as they grow up.

What’s with the Bogus IRS and Microsoft Calls?

With smartphones providing 24/7 connectedness, and the aging of the US population, more and more innocent victims are falling prey to scammers. Whether it’s by phone, email, text message, social media, fax or mail, it can be a challenge to figure out what is a scam and what is real.

Phishing has been the most prevalent scam, where people open emails or visit websites that appear legitimate and are lured into providing personal and financial information. Lately, though, scammers posing as IRS or Microsoft employees have been particularly insidious – and successful. Since everyone knows to take the IRS seriously, and most people rely on Microsoft software for all or part of their computer needs, it isn’t difficult to understand how this happens.

The best plan of attack is to arm yourself with knowledge about how agencies like the IRS and companies like Microsoft contact their customers, and how to determine whether the caller is an employee of those organizations.

Internal Revenue Service

Across the country, taxpayers have been receiving calls from supposed IRS employees telling them they owe money, and that it must be paid promptly through a bank wire or prepaid card. These fraudsters sometimes threaten taxpayers with arrest, deportation or suspension of a business or driver’s license, and become hostile and insulting if you don’t pay them. You can find more information on these scams on the IRS website.

The only way the IRS initiates contact with taxpayers is by US mail – not by phone, email, text message, social media or fax. If you do receive a call from the IRS, record the employee’s name, badge number and call back number. Then call the IRS back directly at 1-800-366-4484 to determine if the person calling is actually an IRS employee, and if they have a legitimate reason for contacting you. Also, if you receive a letter in the mail from the IRS, you can verify that it’s legitimate on the IRS website.

The IRS recommends that if you suspect someone posing as an IRS employee has contacted you, report it promptly.


Similar to the IRS scam, thousands of people have received unsolicited calls from people claiming to be from Microsoft technical support, calling to help fix their computer, phone or tablet. The scammers have you visit what appears to be a legitimate website, then have you download malicious software onto your device. They may request credit card information for services, or direct you to a fraudulent website to enter the information. They identify themselves as employees of Windows Help Desk, Windows Service Center, Microsoft Tech Support, etc. You can get more information about these scams on the Microsoft website.

Here at Merriman, Tyler Bartlett recently received a call from one of these fraudsters posing as a Windows Help Desk employee. He immediately knew it was a scam because he uses a Mac at home, not a Windows computer. From Tyler’s experience, you can see the importance of being knowledgeable about the types of computers and devices you own and the software used on them on a regular basis.

Like the IRS, Microsoft does not initiate contact with customers. If you created a technical support case and you receive a call, you can verify the person is a Microsoft employee by matching up the Support ID given to you when you opened the case. If you didn’t initiate contact with Microsoft, get the person’s name, phone number and department, and then call Microsoft directly at 1-800-426-9400 to confirm that the caller is an employee with a legitimate reason for contacting you.

Keep in mind that Microsoft does not ask you to purchase software or services over the phone. If there’s any sort of fee or subscription for the service, or a payment request from someone claiming to be from Microsoft tech support, Microsoft recommends you hang up and report the incident to them and local authorities.

Final thoughts

The IRS and Microsoft aren’t the only large organizations whose customers have been victimized. Customers of organizations like Bank of America, Chase Bank, PayPal and Apple have received phishing emails with catchy subject lines written to entice you to open them and provide personal and financial information. Be on the lookout for subject lines such as “We have temporarily disabled your account,” “Information about your account,” and “About your last transaction.” Rather than potentially giving away your information to a crook, it’s worth contacting the institutions directly to clear up any matters.

Even though it may take more time, it’s important to ask the right questions to verify the caller is an employee of the company, and that they have a good reason for calling you. Also, it’s important to be cautious when opening links or attachments in emails from unknown senders.

A Boost in Interest for Your FDIC-Insured Savings

Not long ago, interest paid on cash savings and bonds was high enough to provide sufficient income to retirees without having to dip into principal or invest in stocks seeking higher income. Nowadays, earning 1% on savings is a surprisingly great deal compared to most banks and institutions paying 0.01% to 0.1%. combat this frustration, services like MaxMyInterest have sprung up to help savers maximize the interest rate they earn on savings in this historically low interest rate environment. The service optimizes your savings by moving your cash between like-titled, FDIC-insured savings accounts at various banks seeking the highest interest rate, while maintaining FDIC insurance coverage. Most importantly, the service never takes custody of your funds, and you can access and view your funds at any time.

How does the service work?

MaxMyInterest serves as a hub where you can view and manage all of your savings. The service starts by linking your existing checking and savings accounts. Next, to earn higher interest rates than those paid by brick-and-mortar banks (like Bank of America), they provide a common online application to open like-titled, FDIC-insured savings accounts at online institutions. Once you indicate a minimum balance you want to keep in your checking account, the service will optimize the excess. read more…

A Positive Spin on Realizing Losses

Tax-loss harvesting is a strategy used to produce tax savings where an investment that has declined in value is sold at a loss, and a similar investment is purchased simultaneously to maintain the portfolio’s investment mix – risk and expected return. To use the loss for tax purposes, i.e., avoid a wash sale, there is a waiting period of at least 30 days before the original investment can be repurchased. Since buys and sells in retirement accounts are not taxable, tax-loss harvesting is implemented in non-retirement accounts.

The losses realized through tax-loss harvesting can be used to reduce an investor’s taxes in the following scenarios:

  • Offset capital gains produced from the partial or complete sale of an investment
  • Offset mutual fund capital gain distributions
  • Reduce ordinary income by up to $3,000

Long-term capital gains are taxable to investors at the 0%, 15% or 20% rate (before the 3.8% Medicare surtax), based on their taxable income and marginal tax bracket. These rates are preferential compared to ordinary income tax rates, and any losses not used can be carried forward for the rest of the investor’s life.

The following example demonstrates the real life benefits of tax loss harvesting, applied to three scenarios. read more…

Press Release: Merriman Wealth Management and Summit Capital Combine Forces

Merger Creates One of the largest Wealth Management Firms in the Northwest

SEATTLE (April 18, 2016) – Merriman Wealth Management, LLC today announced that Summit Capital Management, LLC, a Northwest-based boutique financial services firm, has merged with Merriman, a Focus Financial Partner firm. This merger makes Merriman one of the largest wealth management firms in the Pacific Northwest.

Summit Capital’s approach has been team-based investment research and management partnered with a client-centric service model. Dave Martin, Matt Rudolf, Rob Martin, and the staff and leadership team of Summit will continue to support their clients as part of the Merriman team.

“The leadership team at Summit Capital has created an amazing firm focused on exceptional client service and robust portfolio management. This merger allows us to extend Merriman’s comprehensive wealth management process to Summit’s clients, and make additional portfolio strategies available to the clients of both firms,” said Colleen Lindstrom, Merriman’s CEO.

Summit has been in conversations with Merriman and its parent firm, Focus Financial Partners, for the past year. With complementary strengths and a clear focus on the team approach to advising clients, it became clear this merger would be a great cultural match. Rob Martin, Managing Partner of Summit Capital commented, “This combination brings together two terrific firms with a similar, client-oriented approach, providing comprehensive investment management and wealth advisory services.”

This merger is part of Merriman’s overall regional growth strategy. Merriman will continue to maintain Summit Capital’s Spokane office, adding to its existing Seattle office and recently-added Portland location. Summit Capital will assume the Merriman name, and Summit Capital’s Seattle employees will be based in Merriman’s current Seattle office.



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