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IRA Rules to be THANKFUL For

With Thanksgiving just days away, let’s reflect on some of the IRA rules you should be thankful for this year.

IRA rules 2013Be thankful that the qualified charitable distribution (QCD) exists, at least through the end of this year (2013). If you are age 70 ½ or older, the QCD provision allows you to give up to $100,000 directly from your IRA to charity. Although you won't be able to take a charitable deduction for that amount, you won’t have to include it in your income for this year either. This helps keep your tax bill lower by preventing your IRA distribution from increasing your income and potentially phasing out personal exemptions or itemized deductions, or from increasing your exposure to the 3.8% healthcare surtax. Plus, the QCD can be used to satisfy all or a portion of your 2013 required minimum distribution.

Be thankful that there are still no restrictions for Roth IRA conversions. That’s right, no matter what your age, income, account value or any other factor, if you have an IRA or other eligible retirement account, you can convert that account to a Roth IRA today. You will, of course, have to pay the income tax on the amount converted now, but you’ll be creating an account that can grow tax-free for the remainder of your lifetime. As an added benefit, unlike a traditional IRA or company plan, you’ll never have to take distributions from your Roth IRA if you don’t want to.

Be thankful that if you decide to do a 2013 Roth conversion, you have the flexibility to change your mind all of the way until October 15, 2014. If you change your mind, you can do what’s called a Roth recharacterization, and remove all the tax from your Roth IRA conversion. There’s no specific reasoning required by the tax code to do so, but common reasons you might consider a Roth conversion include:

1) You don’t have the money to pay the tax
2) Your account value has dropped since you converted
3) You’ve simply had a change of heart

Be thankful that you can generally change your beneficiary form whenever you want. It’s amazing how much can change in a person’s life from one year to the next. From the celebration of a birth or marriage to the heartache of the loss of a loved one, there’s no shortage of life events that can change who you want to name as your IRA beneficiaries. Luckily, as these events occur, you can keep your plan up-to-date, and make sure your hard-earned retirement savings are left to the right people simply by filling out a new beneficiary form.

Thanksgivukkah wishes to everyone.

- By Jeffrey Levine and Jared Trexler


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