Required Minimum Distribution (RMD) planning for those who are turning 70 ½ in 2012.
If you have a 401(k) or traditional IRA plan and are turning 70 ½ this year you are now subject to the RMD rules. These require you to take at least a minimum distribution from your plan based on its balance. The law says the distribution must be taken by April 1st of the year after you turn 70 ½. While sometimes it makes sense to defer the income as long as possible, this may not be the year to do it. We don’t know what tax rates will look like in 2013, but they are currently scheduled to go up absent any congressional action to adjust them. There is also a new 3.8% “Medicare” tax on investment income to the extent your adjusted gross income (AGI) exceeds $200k (single) or $250k (married). If your income is expected to exceed this threshold it may make sense to take the distribution in 2012. You should also consider that if you wait until 2013 to take your RMD you still would need to take the 2013 RMD in 2013, resulting in additional income for that year. If your AGI was otherwise close to the income limit the 2 payments may push it over the top.
Under current law, 2011 is the final year a charitable contribution can be made from an IRA, (by an individual age 70 ½ or older), directly to a qualified tax-exempt charity. This type of distribution is called a “qualified charitable distribution”. The distribution is not taxed to the donor, and counts towards fulfilling the required minimum IRA distribution amount (RMDs) that must be withdrawn each year.
If a “qualified charitable distribution” is made, no itemized deduction is allowed. However, since the distribution is not included in taxable income, the 50%-of-AGI limitation that cash contributions are generally subject to does not apply.
The last three years have surely been some of the scariest times to be a homeowner. The well-documented sharp increase in home sale prices between the early 2000s and 2007 has been followed by a continuing 3 year correction, bringing house prices right back down to near the levels they were at when the run-up started. I would surmise that for most homeowners, the safest course is to stay in your home and wait this correction out.
The government has been acting in a limited fashion to try to buck this trend and spur some buying activity in the real estate market. Lawmakers initiated a tax credit for homebuyers that recently expired, but have also exerted their influence to keep mortgage rates as low as possible. Right now, the average rate in the DC area for a 30-year fixed rate mortgage is a little over 4.5%.