If passed, the SECURE Act 2.0 may contain a more liberal qualified longevity annuity contract (QLAC) option for plan participants. Qualified retirement plan sponsors need to proceed with caution if they offer an annuity option within a 401(k) or defined contribution pension plan in light of their ERISA-imposed fiduciary duties.

Take-Away: As has been periodically reported throughout 2022, there has been some hope that we would see Congress pass what has been called SECURE Act 2.0 before the end of 2022 liberalizing some of the rules that pertain to retirement plan distributions. Currently we hold our breath to see if this legislation gets passed before the end of 2022.

While we may grouse about many of the distribution changes under the SECURE Act, the automatic waiver of the 50% excise tax for the failure to take a year-of-death required minimum distribution (RMD) is a welcome change under the Act.

Since the Tax Code does not contemplate an ‘endowed’ donor advised fund, there is a risk that a donor will be denied a charitable income tax deduction with respect to contributions made to the ‘endowed’ donor advised fund.

To start the statute of limitations running on the excise tax that arises with an excess contribution to a qualified retirement account, it is imperative that a Form 5329 be filed for the tax year in question. Even if the statute of limitations runs on the individual’s Form 1040 income tax return, that will not prevent the IRS from pursuing the excise tax for an excess contribution to a retirement account if no separate Form 5329 is not filed.

Each year the IRS and the Department of Treasury publish what they call their ‘Priority Guidance Plan’ (the Plan) for the next 12 months. The most recent Plan was published in Notice 2022-21 (November 4, 2022) for the period that runs from July 1, 2022 to June 30, 2023. There are over 205 guidance projects in the Plan. Some of the guidance projects that relate to estate and retirement planning are summarized below.

There is a noticeable trend in the U.S. Tax Court of the IRS successfully challenging claimed charitable income tax deductions due to the donor’s failure to substantiate the deduction in accordance with the IRS’s stated instructions. These are cases where a ‘substantial compliance’ with the rules is not enough to preserve a charitable income tax deduction.

A trust owned 529 account can provide great flexibility while sheltering an irrevocable trust from high federal income tax rates. One of the problems with an irrevocable trust, and especially a dynasty-type irrevocable trust, is the high taxes that must be paid on the trust’s accumulated income. Obvious tax benefits can be achieved if the trustee has the authority to invest trust funds in a 529 account.

While a qualified charitable distribution (QCD) is made directly by the IRA custodian to the designated charity, a contemporaneous written acknowledgement (CWA) is still required from the charity for the QCD to be recognized for tax reporting purposes.

The failure to follow highly technical rules will cause a donor to lose a charitable income tax deduction. It seems that these rules are traps where the IRS tends to say ‘gotcha.’