A part of your estate planning may consist of offering assets to charities and loved ones. This retirement information looks at some tax advantages associated with gifting now and an opportunity that expires 12/31/11. Making your presents while you are living allows you the enjoyment of gifting while at the same time, getting some tax relief. As an example, gifting now helps to decrease your estate so less of it will be subject to estate taxes.
Retirement Information on Gifts to Individuals
Remember, in 2011 you can gift up to $13,000 per recipient each year without incurring any gift tax obligation. Any amount to person during the yr in excess of this might be subject to gift tax when estate taxes are later calculated on your demise.
Retirement Information on Charitable Deductions
You always get an itemized reduction for charitable contributions on your form 1040. But a tax benefit for you personally is to donate valuable investments that have appreciated. You get to take a deduction for their fair market value on the date of the donation. Understand that in the event you sold them first, you'd have to pay tax from your pocket on their gain, and therefore less to gift!
Of course, if the current value of securities has fallen from what you paid for them, then do not donate them. Sell them first and then donate the proceeds. That way you can claim the capital loss on your taxes and also the deduction for the charitable donation.
There is a limit to the deduction you can take for appreciated assets -- up to 30% of your adjusted gross income (but you can carry the excess forward for 5 years). And charitable tax deductions are not decreased for AMT purposes.
Retirement Information on Senior Tax Break Ending 12/31/11
If you're 70 ½ or older, you may make a tax-free direct rollover of up to $100,000 of your IRA to a charitable trust during 2011. The dollar amount you rollover to the charity will also count toward your 2011 IRA minimum distribution. You may make a charitable IRA roll-over solely to public charitable groups but not to donor-advised funds or private foundations.
But in this instance, you cannot take an itemized deduction on your 1040 for this roll-over donation (nor are you paying the income tax on these IRA funds). Nevertheless, this donation is not includible with any itemized contributions so it will not affect the itemized reduction limitations based on adjusted gross income.
Situations where this kind of non-profit rollover may be worth thinking about include where:
• your retirement distributions make up a large a part of your taxable revenue,
• you're subject to a phase-out of itemized deductions
• you do not itemize deductions or itemize just for the purpose of acquiring charitable tax deductions, or
• your IRA (or 401k) distribution leads to higher taxation of social security benefits.
Retirement Information on Estate Planning With your IRA
Whether or not you wish to give a charity gift now from your IRA or if you have charitable desires at death, always make use of IRA (or 401k) funds first for this objective. If you leave a dollar of IRA money to a charity, they pay no tax and obtain the full utilization of the $1. In the event you leave an IRA $1 to your kids, they pay tax and get to use say seventy cents. Thus, you often want to give IRA funds first to charities as your beneficiaries would like regular money (i.e. non-IRA money) on which they don't need to pay income tax.
Utilize this retirement information to make the most of your IRA for you personally, your beneficiaries and favored charities.