As We Approach Year-End 2010—Things to Do and to Consider

  1. Bascom Hall in WinterQualified retirement plans and IRAs for 2010: The 2009 waiver was not extended by Congress, so the required minimum distribution (RMD) is back in effect. The amount of the withdrawal is based on the value of the account(s) as of 12/31/09, and there is a 50 percent penalty on RMDs that are not withdrawn.
  2. If you are considering a Roth conversion and wish to take advantage of spreading the conversion tax over 2011 and 2012 tax years, the conversion must be done before 12/31/10. Of course, you can elect to pay the entire tax with your 2010 tax return, in which case charitable contributions can eliminate the tax impact of the IRA withdrawal or Roth conversion.
  3. It is an understatement to say that taxpayers are in a state of confusion with regard to prospects for any changes in the tax laws. What to do when you—or anyone else for that matter—has no firm grasp as to what may happen?

Recently, a nationally recognized tax and financial planning expert said, “A person should proceed to act on the basis of what the law is today and take advantage of planning opportunities that we have on hand. No one knows which of these planning opportunities will be around next year or into the future.”

There is a chance, for example, that income-tax rates at the high end may go up next year, but it is a chance that seems to be fading in the face of economic and political considerations. The same is true for a potentially higher capital-gain tax rate.

But should that keep someone from making a year-end charitable gift this year for the sake of possibly saving a few more tax dollars next year? And where are we if tax rates don’t go up? Not to mention the loss of the use of current tax savings for an entire year.

Finally, always remember that charitable gifts funded with appreciated property provide a double tax benefit: an income-tax deduction plus avoidance of capital-gain tax on any paper profit.

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