2013 Tax Planning and Year-End Tips (Part 2 of 2)

2013 Tax Planning and Year-End Tips (Part 2 of 2)

Are you retired, taking distributions from your retirement accounts, or considering gifting money or assets to a family member or favorite charity?

Important Disclosure: In recent years, there have been frequent changes in tax, retirement contribution and savings, and gifting legislation. Before following any of the suggestions below, we strongly recommend contacting your tax or financial advisor to assess tax and retirement consequences and eligibility rules.

  1. Take an RMD if you have reached age 70½ and have money in an IRA account.
    If you have reached age 70½ or are older, you must take a “required minimum distribution” or RMD from your IRA (all IRAs except for ROTH IRA). Not doing so can result in big trouble and penalties with the IRS.
    Note: You can delay your very first RMD in the year you reach age 70½. This special rule allows you to delay taking your first distribution until April 1 of the following year.

    However, delaying your first RMD to the following year may cause you to take two distributions that following year—your first and second year distributions. Check with your tax advisor regarding the timing of your distribution. Remember, distributions from an IRA or retirement plan account are taxable per the IRS.

    Tip: After taking your first RMD under these special rules, be sure to take all future RMDs by December 31 of the calendar year.

  2. If age 70½ or older, utilize the Qualified Charitable Distribution (QCD) rule in 2013 to donate your IRA RMD to charity.
    Have you reached age 70½ this year, and do you have an RMD (required minimum distribution) to take from an IRA? A Qualified Charitable Distribution or “QCD” is an otherwise taxable distribution from a traditional IRA owned by an individual who is age 70½ (or older) that is paid directly from the IRA to a qualified charity.
    A great way to help your favorite charity this year (2013) is by gifting your RMD directly to the charity. In 2013, the IRS allows you to directly allocate your required minimum distribution (RMD) to a qualified charity without having to pay taxes on the distribution. This is only available in 2013 unless the law changes. It’s a great way to gift money to charity AND decrease your taxable income for this year.

    Tip: “Paid directly” means funds must be transferred directly from the IRA to the charity. The maximum charitable limit under this rule is $100,000 per person in a single year.

  3. Utilize the gift-tax exclusion of $14,000 (2013) per person to help a family member or friend.
    A great way to help a family member or dear friend and move money out of your estate is by way of charitable gifting to individuals. Before you do, however, remember that the federal estate tax exemption for people who die in 2013 increased this year to $5,250,000 and is now indexed for inflation. So, unless you have a very large estate, with a value over $5.25 million, it is likely your family will not pay federal estate taxes when you die. Even if your estate falls below the federal threshold, state estate tax laws vary, so check with your tax advisor for your particular state.

    If you have a strong financial plan and have a great deal more savings than you will need to live a preferred retirement lifestyle, consider taking advantage of the annual gift exclusion in the amount of $14,000 per person. This exclusion allows you to gift up to $14,000 in a calendar year to any person—family member, friend, or stranger—without triggering mandatory tax filing rules. Giving away money, appreciated stock, or other assets is an easy way to decrease or eliminate taxes on your future estate.

Tip: Check out the IRS website on gifting for more info: IRS Gift Tax

Important: Before following any of the steps above, we recommend you check with your tax advisor and/or financial advisor to assess tax consequences and eligibility rules.

Whether you are retired and enjoying life after a rewarding career or working diligently until the time that you are retired, the above tips should help in your tax planning, retirement, and estate planning. Happy Holidays!

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