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Recent Newsletter

Issues for 2010



Issues for 2010

We want to bring you up-to-date on some issues worth considering.

Roth IRA. Beginning 2010 all tax payers, regardless of income, will be able to convert ordinary Individual Retirement Accounts to a Roth IRA. If left alone for 5 years, the investments grow tax free, can be withdrawn tax free, and passed to beneficiaries free of income taxes. This may be an appropriate strategy for many of you for a part, or all, of your IRAs.

To convert, you must pay ordinary income taxes on the amount of the conversion. This serves as a hedge against having to pay future taxes on income withdrawn.

A Roth plan makes sense if you intend to use the money many years from now, wish to pass it to your heirs income-tax free, you have the money to pay the taxes today, and/or have strong beliefs that taxes will be substantially higher in the future.

We do not intend to be in any rush to recommend conversions until later in the year. We would like to see how Congress is going to deal with tax issues once they get the health care bill finished.
Gifting. Large gifts are taxable as wealth transfers. The tax is paid by the “giftor.” The person who receives the gift generally does not have to pay tax on the capital property transferred. However, if the property is appreciated property such as a real estate interest, when the “giftee” sells the property their capital gains will be computed using the cost basis of the giftor.

Each year, a person may make a transfer tax-free gift of $13,000 per person. Mom and Dad could give each child $26,000. It is wise to have the check deposited before December 31.

Gifts given to a Section 529 Education plan are not considered taxable transfers providing the amount transferred does not exceed 5 times an annual gift of $13,000 or $65,000. That’s $130,000 per couple. States have different rules regarding the maximum contributions allowed to a plan with the median limit of $235,000.

Required Minimum Distribution. A second issue that comes up involves Required Minimum Distributions. A retirement plan required to make distributions due to age of participant, or an inherited IRA, is valued on December 31 of the prior year. The required RMD must be paid from the account by December 31 of the following year based on that value.

In 2009, Congress gave us a break and suspended RMDs for the year.

This year is another story,
and Required Minimum Distributions will need to be taken.



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