Mat Sorensen


December 23, 2014

As we end 2014, there are three critical items that you must be aware of as these items must be completed by December 31, 2014.

1. Required Minimum Distributions.  If you are age 70 1/2 or older and if you have a traditional IRA (or SEP or SIMPLE IRA or 401k), you must take your required minimum distributions (“RMD”) for 2014 by December 31, 2014. While 2014 contributions can be made up until April 15 of the next year, RMD payments must be taken before the end of the year. If you have a Roth IRA, relax,  the RMD rules don’t apply to Roth IRAs.  Click here for a nice summary of the RMD rules from the IRS.

2. Charitable RMD Distribution Income Exclusion Rule. Congress just passed the tax extenders bill and one of the items extended was the Qualified Charitable Distribution rules. Under this rule, an IRA owner who is 70 1/2 or older can donate up to $100,000 from their IRA to a qualifying charity and such donation from their IRA will count towards their required minimum distribution requirement and will not be included into their gross income. This is a great way to pull money out of your IRA tax-free as the distribution is not included in your gross income. This only applies to those 70 1/2 or older and again it will also satisfy RMD requirements. It’s unfortunate that Congress only recently extended this law as it would have been a great planning tool if we knew it were available in 2014. Regardless, this can be an excellent option for those who are 70 1/2 and who would like to contribute to a charity by year-end. Keep in mind though that you don’t get a charitable deduction for the amount given to charity from the IRA, instead, you are able to exclude up to $100,000 from the IRA distribution on your income (something that would otherwise be taxable). The IRS has more details here. This page explains the 2013 rule but the rule was extended just two weeks ago and it now applies in 2014 as well. Note that it was only extended for 2014 so the rule is not available in 2015 at this time.

3. Roth IRA Conversions.Conversions from Traditional IRAs to Roth IRAs must be completed by December 31, 2014, in order to apply to 2014 taxable income. Keep in mind that when you convert a traditional IRA to a Roth IRA that the amount converted is included as income on your tax return. There are no longer any income restrictions on Roth IRA conversions so everyone qualified regardless of income. Converting to a Roth can be a great strategy if you have a low-income year or if you have losses that can be used to off-set the income from the conversion. It is also a great strategy if you have investments will current low fair market values, which you believe will appreciate over time. Many clients wait until year-end to determine if this is a good year to convert or not. . If you are unsure about whether a Roth conversion makes sense for you, keep in mind that you can re-characterize a Roth conversion back to Traditional IRA before you file your 2014 tax return on April 15, 2015  (including extensions).

By: Mat Sorensen, Attorney and Author of The Self Directed IRA Handbook

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