Tax planning for 2010 is going to be a real challenge, and unintended consequences may adversely affect the best-laid plans. Minimizing the tax bill requires a true balancing act between the changes in the tax rates, the differences in the phaseouts between the two years, and the always unpredictable alternative minimum tax (AMT).
There are significant tax savings opportunities for anyone who can control the timing of either a large income item or an itemized deduction. The problem is determining which tax year will result in the greatest benefit. We urge you to reach out to your accountant or tax preparers and discuss the following issues:
Timing of your income (there are no phaseouts in 2010) – take an early bonus, make IRA withdrawals, or recognize some other type of ordinary income in 2010
Accelerating capital gains into 2010 – selling low-bases stock as capital gain rate is scheduled to increase to 20% and the favorable 15% rate is going back to the taxpayer’s marginal rate for qualifying dividends.
AMT tax – there is no “patch” approved for 2010 and the exemption will revert back to 1986 level.
Taking deductions in 2010 vs. deferring to 2011?
Roth IRA – should you convert in 2010 and pay the tax as the income rates are going up?
Leave your comments here or contact us at www.ythlaw.com
Showing posts with label Roth IRA. Show all posts
Showing posts with label Roth IRA. Show all posts
Tuesday, September 14, 2010
Sunday, June 7, 2009
Rethinking Your Estate Plan - Question 4
The questions posed in the Money Magazine are very insightful. That is why I have been sharing these questions with you in my blog. I hope you are looking at your answers for your next steps.
QUESTION 4. WANT TO GIVE TO CHARITY?
"If you'd like to donate some of your estate, one of the smartest ways is through a traditional IRA. Say you named your niece as the beneficiary of your IRA. She'd owe income tax on withdrawals, and the value of the IRA would be included in your estate for tax purposes.
But if you name a qualified charity instead, it would owe no tax on withdrawals and you could reduce the taxes your estate would pay. (This strategy makes less sense with Roth IRAs; because they're funded with after-tax money, whoever withdraws the dough won't owe income tax on it.) Prefer to give the money now? Through the end of 2009 you can transfer up to $100,000 directly from a traditional IRA to a charity as long as you're 70½ or older. You won't be able to claim a tax deduction for the contribution, but you won't owe income tax on the withdrawal either. Another option you may want to ask your lawyer about: a charitable remainder trust. You put assets into the trust, which then pays you an income for a specified number of years or the rest of your life. After the trust matures, the assets go to the charity you've chosen. (At least 10% of the amount you put into the trust must go to the charity.)
This trust has several advantages. When you fund it, you can take a tax deduction right away based on the present value of the gift that the charity will ultimately receive. You can get a reliable stream of income (you must draw down at least 5% of the trust's value each year). And you can shift into the trust assets that have appreciated quite a bit - such as shares of Exxon Mobil that you've held for decades - and sell them in the trust without incurring capital gains right away. "
Check out some of our archives for more information on charitable estate planning. Leave a comment or contact us at http://www.ythlaw.com/
QUESTION 4. WANT TO GIVE TO CHARITY?
"If you'd like to donate some of your estate, one of the smartest ways is through a traditional IRA. Say you named your niece as the beneficiary of your IRA. She'd owe income tax on withdrawals, and the value of the IRA would be included in your estate for tax purposes.
But if you name a qualified charity instead, it would owe no tax on withdrawals and you could reduce the taxes your estate would pay. (This strategy makes less sense with Roth IRAs; because they're funded with after-tax money, whoever withdraws the dough won't owe income tax on it.) Prefer to give the money now? Through the end of 2009 you can transfer up to $100,000 directly from a traditional IRA to a charity as long as you're 70½ or older. You won't be able to claim a tax deduction for the contribution, but you won't owe income tax on the withdrawal either. Another option you may want to ask your lawyer about: a charitable remainder trust. You put assets into the trust, which then pays you an income for a specified number of years or the rest of your life. After the trust matures, the assets go to the charity you've chosen. (At least 10% of the amount you put into the trust must go to the charity.)
This trust has several advantages. When you fund it, you can take a tax deduction right away based on the present value of the gift that the charity will ultimately receive. You can get a reliable stream of income (you must draw down at least 5% of the trust's value each year). And you can shift into the trust assets that have appreciated quite a bit - such as shares of Exxon Mobil that you've held for decades - and sell them in the trust without incurring capital gains right away. "
Check out some of our archives for more information on charitable estate planning. Leave a comment or contact us at http://www.ythlaw.com/
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