News Stories and Articles
Increased Taxes Coming?
There is speculation that by 2011, the federal income tax top rate is
likely to be 39.6%. With federal phase-outs of exemptions and loss of
part of itemized deductions, in some states the top combined rate will
exceed 50%. Not content with just income tax, the legislators are probably
going to increase the capital gains rate - probably to 20% federal,
and thus to 25% combined in many states.
An IRA to Roth IRA Conversion Idea - just about
a "have your cake and eat it too."
As has been reported here before, in 2010 there are no income limits
to restrict converting pretax dollars in an IRA into after tax dollars
in a Roth IRA. There is, however, the little matter of the tax that
would be due on the conversion, as the holder would need to pay income
tax on the dollars moved.
The government has mitigated the tax burden slightly, by letting the holder pay half the tax in the 2011 and half in 2012. While the reward of tax-free growth in a Roth IRA is enticing, the taxes are burdensome. But even so, many columnists are predicting tax rates will increase in the future, further impacting traditional IRAs.
Let's look at an example. Suppose Joe Taxpayer has an IRA and will have to start mandatory withdrawals as he is 71. He doesn't need the income as he loves his work, is in good health, and will probably continue working for five more years. He'd rather keep building his account for when he actually retires. His taxable income in 2010 will put him and his wife, also 71, in the 33% tax bracket as their taxable income is just over $200,000.
Ideally, Joe would like to reduce his IRA (and the mandatory withdrawals) and take advantage of tax-free compounding in a Roth IRA without having to pay taxes on withdrawals or be forced to withdraw from it.
Joe and his wife have money in a CD currently paying 1.5%. His wife volunteers at a local charity and has been asking Joe about the possibility of making a donation. They can write a $100,000 5.3% charitable gift annuity with the local charity which will pay them $5300 a year for life. For 19.7 years, $3503.30 of the $5300 will be tax free, which means the annual annuity is equivalent to $7049.07 in fully taxable income. This is an increase in annual income of $5549.07 compared to the current CD income.
In addition, they receive a charitable tax deduction for making the
gift $30,946, which will reduce the conversion tax. All told, with two
years of higher income and the charitable tax deduction, they have reduced
the $33,000 in taxes to $11,098. Now, moving $100,000 into a Roth IRA
and spreading the tax due over two years starts looking very attractive.
Plus, in addition to the potential of continuing higher income, Joe
and his wife have the satisfaction of making a significant gift to a
charity that is very important to them.
Budget Plan Revives President's Call for
New Charitable-Deduction Limit
According to a February 1 article in The Chronicle on Philanthropy,
Suzanne Perry reports that President Obama's budget proposals for fiscal
2011 "would limit to 28 percent the tax break couples earning $250,000
(or individuals earning $200,000) could get for their itemized deductions,
including gifts to charity." A similar proposal failed Congressional
endorsement last year.
2/2/10 Planned Giving Design Center
Money resolutions to make in 2010
Hoping to clean up your finances this year? Set some reasonable goals.
Kathy M. Kristof suggests 10 simple ones that can make a big difference.
With the economy still in the dumper and many of us feeling poorer,
it's no surprise that many Americans have resolved to clean up their
finances in this New Year. The trick is to set reasonable goals. Make
those resolutions too difficult and you're sure to break them. Like
dieters who vow to eat nothing but carrot sticks, spendthrifts who swear
to pinch every penny are doomed to failure. A better approach is to
start with a few things that are so easy to fix that you'll stick with
the program. You may be surprised how quickly these small changes can
add up to real money in your pocket. Kathy M. Kristof suggests 10 simple
resolutions that can improve your financial position in the months and
years to come.
Click here for the complete story.
IRS Issues Guidance on 2009 Required
Minimum Distribution Waiver
The Internal Revenue Service today provided guidance for retirement
plan administrators, plan participants and retirees regarding recent
legislation affecting required minimum distributions. The Worker, Retiree,
and Employer Recovery Act of 2008 waives required minimum distributions
for 2009 from certain retirement plans.
Generally, a required minimum distribution is the smallest annual amount
that must be withdrawn from an IRA or an employer's plan beginning with
the year the account owner reaches age 70 1/2. The 2008 law waives required
minimum distributions for 2009 for IRAs and defined contribution plans
(such as 401(k)s) and allows certain amounts distributed as 2009 required
minimum distributions to be rolled over into an IRA or another retirement
plan.
Notice 2009-82 (http://www.irs.gov/pub/irs-drop/n-09-82.pdf) provides
relief for people who have already received a 2009 required minimum
distribution this year. Individuals generally have until the later of
Nov. 30, 2009, or 60 days after the date the distribution was received,
to roll over the distribution.
The notice also provides guidance for retirement plan sponsors. It contains
two sample plan amendments that plan sponsors may adopt or use to amend
their plans to either stop or continue 2009 required minimum distributions.
Both sample amendments provide that participants and beneficiaries can
choose to receive or not to receive 2009 required minimum distributions.
Also, both sample amendments allow the employer to offer direct rollover
options of certain 2009 required minimum distributions.
Plan sponsors may need to tailor the sample amendment to their plan's
particular terms and administration procedures and must adopt the amendment
no later than the last day of the first plan year beginning on or after
Jan. 1, 2011 (Jan. 1, 2012 for governmental plans).
IRS 2009-085
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