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There’s Still Time

IRA owners ages 70½ and older have a short time left to make qualified charitable distributions (QCDs) for 2016.  Donors can give up to $100,000 annually, tax free.  Although there is no income tax deduction allowed, if gifts take the place of a donor’s required minimum distribution for the year, there are tax savings.  For example, Peter is required to take $36,000 from his IRA this year.  In his 28% income tax bracket, he will owe tax of $10,080 on that amount.  Peter makes charitable deductions each year of about $5,000.  If Peter takes $31,000 and tells the custodian of his IRA to send the remaining $5,000 to charity instead, he saves $1,400 in income tax.

QCD gifts can come only from traditional and Roth IRAs, not from 401(k) plans.  The gifts cannot be used to establish charitable gift annuities or charitable remainder trusts, but can satisfy charitable pledges.  The donor must have reached age 70½ by the date of the gift.

If you haven’t taken all your required minimum distributions for 2016, consider a QCD gift.  Even if you have taken your 2016 required withdrawals, you can still make gifts from IRAs before year’s end.


Some Numbers Looking Up

  • Social Security payments will increase slightly in 2017.  The .3% cost-of-living adjustment means the average retiree will get an additional $5 per month. Those still working and paying in to Social Security will have to pay until earnings reach $127,200, compared with $118,500 for 2016.  Recipients under the full retirement age of 66 who are still working can earn up to $16,920 in 2017 (versus $15,720 in 2016) before benefits are reduced.

  • The estate, gift and generation-skipping transfer tax credits will shelter up to $5,490,000 in 2017, a $40,000 increase from 2016.

There are some numbers that remain the same for 2017:

  • The maximum contribution to 401(k) plans remains at $18,000, with a $6,000 catch-up for workers over age 50.

  • The personal exemption remains $4,050.

  • IRA contributions are capped at $5,500, with the $1,000 catch-up.

  • The kiddie tax, which applies to the unearned income of children under age 19 and college students under age 24 who earn less than half their income, is $2,100 for 2017.


A Baker’s Dozen Year-End Ideas

  • Have your tax adviser review your expected tax liability.  Are there any year-end strategies you can use to keep taxes lower?

  • Review your portfolio to see if there are gains to harvest before year’s end or losses that could offset gains.

  • See if there are remaining funds in your flexible spending account that must be used by year’s end.

  • Stock up on office supplies if your business will need deductions for 2016.

  • Get paperwork in order if you’re planning to retire in early 2017.

  • Check U.S. savings bonds to determine if any have stopped earning interest.  You can redeem the bonds and reinvest, or make a gift of the proceeds to charity.  The charitable deduction will offset the income tax you pay on redeeming the bonds.

  • Take a look at your will, revocable living trust and other estate planning documents to see if changes are needed.  Call your attorney if updates are required.

  • Ask your tax adviser whether you should switch your traditional IRA to a Roth.  You’ll owe tax on any conversion, but all future qualified distributions will be tax free.  There are also several ways to generate offsetting charitable deductions to help lessen the tax burden.

  • Review insurance policies on your home, life, car, disability and umbrella to be sure coverage is sufficient and the premiums are competitive.

  • Photograph or videotape the rooms in your home to document possessions for insurance purposes.  Keep the pictures or videotape in a safe deposit box and plan to update them regularly.

  • Mail checks to charity by midnight on December 31 to secure a 2016 deduction.  You can also make gifts by credit card and qualify.

  • If you’re planning to make charitable gifts of stock or mutual funds shares, start the process early to complete the gifts by year’s end.

  • If you’re age 70½ or older, make sure you take any required minimum distributions from IRAs.  Another suggestion: Direct that part of the distribution be sent directly to charity and avoid the tax you would otherwise have to pay.


Tax Milestones for All Ages

Birth — Parents must obtain a Social Security number in order to claim the child as a dependent.

Age 19 — The kiddie tax no longer applies.  Prior to age 19, the unearned income over $2,100 of a child is taxed at the parents’ highest tax rate, rather than at the lower rates that apply for single taxpayers.  If the child is a full-time student earning less than half of his or her income, the kiddie tax applies to age 24.

Age 30 — Funds remaining in an education savings account must be distributed by this time.  If not used for qualified education expenses, the beneficiary is taxed on the earnings.  The tax can be avoided by rolling over the account to another family member under age 30.

Age 50 — Catch-up contributions can be made to IRAs and 401(k)s.  The extra is $1,000 for IRAs and $6,000 for 401(k)s, in addition to the $5,500 and $18,000 maximums, respectively.

Age 59½ — Withdrawals from IRAs are no longer subject to the 10% early distribution penalty.

Age 62 — Social Security benefits may begin, although payments are permanently reduced.  If the recipient continues working, benefits are reduced by $1 for each $2 of earned income in excess of $15,720 ($16,920 in 2017).

Age 65 — The standard deduction increases by an additional $1,250 for married individuals and $1,550 for singles and heads of households.

Age 66 — The age of full retirement for those born between 1943 and 1954.  The age is scheduled to gradually increase, eventually reaching age 67.  The reduction in Social Security benefits no longer applies to earned income.

Age 70½ — Owners of IRAs and 401(k)s must begin taking required minimum distributions.  IRA owners can make direct gifts to charity, tax free, up to $100,000 annually.  The gifts can satisfy the required minimum distributions and save tax dollars, even though no charitable deduction is allowed.



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