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Year-End Tax Considerations

by Charles Rotblut, CFA

The fate of the Bush tax cuts was unknown at press time, as Congress had just reconvened. A compromise that would temporarily extend all tax cuts, including those for high-income earners, was being discussed. Thus, be sure to look for any legislative changes before making year-end tax planning decisions.

Even with the uncertainty, there are factors that, depending on your financial situation, may need to be considered before year-end. Here are some that

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Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/charlesrotblut.


Discussion

Raj from Oklahoma posted over 3 years ago:

Your statement said that taxes on Roth conversion done in 2010 may be paid in 2011 and 2012 . This is rather confusing to me . Because , one pays 2010 income taxes in April 2011 any way . Do you mean that we will pay the taxes on only 1/2 of the conversion amount in April 2011 and the other half in April 2012 ?

Please elaborate on this issue . I talked with some of my friends and there is a lot of confusion in their minds too .

Thanks .

Raj Phansalkar
rphansalkar@sbcglobal.net


Bruce from Wisconsin posted over 3 years ago:

The article would better read if it stated that income from a Roth conversion can either be included in 2010 income, or as an option included as income 1/2 in 2011 and 1/2 in 2012.
If you are making a major conversion one possible planning tip is to make multiple conversions rather than just one so that you have the option of reporting income over all three years if that works out better. Also it is likely that by the 2010 due date (4/18/11)we should know what the US tax rates will be in 2011.


Robert from New York posted over 3 years ago:

To clarify the IRA distribution statement, your 70th birthday must occur prior to 6/30/2010 in order to be required to take a minimum distribution in 2010. Is that correct?


Robert from New York posted over 3 years ago:

To clarify the IRA distribution statement, your 70th birthday must occur prior to 6/30/2010 in order to be required to take a minimum distribution in 2010. Is that correct?


Robert from New York posted over 3 years ago:

When calculating the distribution amount (which is based upon remaining life expectancy), when is the basis for total value calculated? For instance, if one took the minimum distribution on 1/1/2011 based upon the market value of the total tax deferred accounts on 1/1/2011, and sometime later during the year, the total value of the original tax deferred accounts declined, could one return the difference between the value taken on day 1 and the amount that would have been taken on the declined value date and still meet the requirements of the minimum distribution calculation?


Charles Rotblut from Illinois posted over 3 years ago:

Robert - The IRS states that an "retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired."

Regarding the balance upon which the RMD is based on, the IRS explains, "Generally, a RMD is calculated for each account by dividing the prior December 31st balance of that IRA or retirement plan account by a life expectancy factor that IRS publishes in Tables in Publication 590, Individual Retirement Arrangements (IRAs)."

The IRS has a document regarding RMDs on its website:
Retirement Plans FAQs regarding Required Minimum Distributions
http://www.irs.gov/retirement/article/0,,id=96989,00.html


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