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The New Tax Law and IRAs

The 2010 "Tax Relief Act" affects planning for our clients' retirement benefits in three ways.

Natalie Choate, 01/14/2011

Do you have your own solutions/suggestions? Leave a comment at the end of the article!

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The 2010 "Tax Relief Act," signed into law on Dec. 17, 2010, affects planning for our clients' retirement benefits in three ways.

Question: Does the new Tax Act affect IRAs and other retirement benefits?

Natalie: Yes. The Tax Relief Act of 2010 affects three aspects of planning for our clients' retirement benefits--lifetime charitable giving, Roth conversions, and estate planning.

Lifetime Charitable Giving From IRAs
During 2006-2009, an individual who was older than age 70½ had the ability to make transfers directly from his IRA to a public charity. Such "Qualified Charitable Distributions" were limited to $100,000 per year per donor, and were not includible in the donor's income as IRA distributions normally would be. A person could even use a Qualified Charitable Distribution to fulfill his minimum distribution requirement. But Qualified Charitable Distributions expired at the end of 2009.

Now, with the Tax Relief Act of 2010, Congress has revived Qualified Charitable Distributions and extended them for two more years--2010 and 2011.

This important news for our charitably-inclined older clients even has a unique provision with a very short time fuse. Congress realized it was a little late in mid-December 2010 to suddenly start allowing these charitable IRA transfers for the year 2010. So the law includes a provision allowing a person to make a Qualified Charitable Distribution in the month of January 2011--this month--and have the distribution count as a 2010 distribution! This may be the first time the Internal Revenue Code has included a provision that is good for only one month.

Natalie Choate practices law in Boston, specializing in estate planning for retirement benefits. Her book, Life and Death Planning for Retirement Benefits, is fast becoming the leading resource for professionals in this field.

The author is not an employee of Morningstar, Inc. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar.

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