Ask Karen

Question:

How can I avoid increasing my tax burden?

Answer:

My dear dad celebrated his 71st birthday last November. Guess what Uncle Sam gave him? A bigger tax bill. This present is given to everyone on April 1, following the year they reach 70½, when the law requires you to start taking taxable distributions from your IRA and other qualified retirement plans.

Dad wondered if there was any way to avoid this. Luckily, Congress reinstated the Charitable IRA Rollover provision last year, which permits charitable donors who have reached 70½ to transfer up to $100,000 from a traditional IRA directly to a qualifying charity, like Cincinnati Children’s, without recognizing the distribution as income for federal tax purposes.

This donation may keep you in a lower tax bracket and/or prevent you from losing other valuable deductions that are phased out as your adjusted gross income increases.

The new law is in effect for direct transfers from IRAs that occur before the end of 2011, so it is important to act soon to take advantage of potential tax savings.

Please note that there are some specific requirements that must be met to insure your transfer qualifies. Please check with your tax advisor for guidance. I am also happy to answer your questions or help in any way.