Donating Your RMD To Charity - Law Extended for 2008 & 2009

The Pension Protection Act of 2006 allows IRA owners age 70 1/2 or older to make direct transfers of up to $100,000 per year from their IRA to a charity. The provision became available for IRA distributions taken after Aug. 17, 2006 and originally only applied through the end of 2007.  Note: the Emergency Economic Stabilization Act of 2008 extends this law to include 2008 and 2009.

Distributions can be made from taxable funds in an IRA or Roth IRA, but not from employer plans or SEP and SIMPLE IRAs. The distribution will not be taxable to you, but you don’t get to deduct the charitable contribution on your tax return. This is more advantageous to taxpayers because even though you get a charitable deduction if you take the IRA withdrawal and report that amount in income, many taxpayers do not itemize, and therefore they don’t always get to take advantage of the deduction.

The direct transfer from the IRA to the charity can also satisfy a person’s required minimum distribution for the year. If you are charitably inclined, it may be best to contribute from the IRA, at least up to the RMD amount thereby avoiding that amount being included in income. This will lower your adjusted gross income (AGI) and might avoid or lessen the amount of Social Security benefits that are taxed.

The reduction in AGI can also increase tax deductions, exemptions or credits that are pegged to AGI either in terms of specified amounts or as a percentage of AGI. The distributions are deemed to come from income first if the IRA has non-deductible contributions. This contrasts with the normal pro-rata rule that applies to other IRA distributions where there are after-tax funds in the IRA.

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Jump Start Your Finances

Introducing a new consulting service: Jump Start Your Finances

Are you:

• Overwhelmed by your company’s 401K choices?
• Confused about investment products?
• Living from paycheck to paycheck?
• Saving enough to meet your financial goals?
• Getting all the tax deductions you are entitled to?

Jump Start Your Finances is a consultation session for younger individuals and couples, who have important questions about their finances, but who may not yet need a written financial plan.

The Jump Start Your Finances Consultation will teach you:

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How families making $75,000 can get hit with AMT

There was a very good article on the AMT tax this morning on CNN Money’s website. 

It basically talks about how the AMT is supposed to keep the rich from paying too little tax, but since the AMT rules have never been adjusted, it’s middle income Americans who are facing the AMT. 

I agree that the AMT needs to be fixed, as more and more of my clients become subject to the AMT every year.

Click here to read more.

Tags: AMT, alternative minimum tax

172 investing classes at Morningstar

I am frequently asked for good resources to learn more about investing.  Morningstar.com is one of my favorite resources to learn more about investing. 

The Morningstar Classroom offers over 172 courses on investing.  Topics cover stocks, bonds, mutual funds and portfolio management. 

The classes are free and start from a basic learning level and progress up to an advanced level, so investors of all levels can improve their investing knowledge.  Visit the Morningstar Classroom to review the course catalog and to sign up. 

In addition to these free courses, Morningstar also offers investing workshops for a nominal fee.  The workshops are more in depth than the free courses, and include exercises to help sharpen your investing skills. 

Finally, Morningstar has some great articles on their website.  My favorite columnist is Sue Stevens.  Click on the Personal Finance tab to read Sue’s articles.

Tags: investing

Where to keep your emergency fund

In the last few weeks, I’ve talked about why you should have an emergency fund, and how much you should have. 

Today I want to talk about where to keep your emergency fund.

If you’ve followed the guidelines (3 to 6 months of living expenses, or $1,000 if you’re working on a ‘baby’ emergency fund), then you may have a substantial amount of cash lying around.

You don’t want this money sitting in a checking account earning no interest, or a savings account that earns less than 1% interest.

On the other hand, you don’t want to put your emergency fund at risk.  So where to put that cash?  Here are some suggestions:

1.  Look for a money market account at a bank or credit union in your area.  A great place to start your research is Bankrate.com, where you can search by your location.  Your local paper might also list money market accounts in the money or finance section.

2.  If you’re comfortable with online banking, check out internet banks such as ING, HSBC, or Emigrant.  Online banks may offer a higher interest rate than local banks because they have lower overhead.

3.  CDs - although a good portion of your emergency fund should be in liquid accounts that are easy to access, you might want to keep part of your emergency fund in CDs to earn a higher interest rate.  Shop Bankrate.com or your local banks for the best rates.

4.  Money market mutual funds - if you already have investments with a mutual fund company or brokerage company, you might consider using a money market mutual fund for your emergency fund.  Rates are competitive and this option may be more convenient for you if you already have a brokerage account. 

5.  Short-term and ultra short-term bond funds - these are bond funds which fluctuate based on what the bond market is doing, so the value of your bond fund can go down.  However, there is potential for a greater return than a money market or CD, if you don’t mind the additional risk.

Tags: saving money, budgeting, emergency fund