It is just a little over a week until the close of the 2011 tax year. But before the year ends, there may be some outstanding IRA issues that may require your immediate action. Here are a few December 31st deadline topics to consider:

  • IRA to Charity Transfers – An up-to-$100,000 annual exclusion from gross income is allowed for taxpayers aged 70½ or older who make otherwise taxable IRA distributions that are qualified charitable distributions. However, 2011 is the last year for this tax benefit. Therefore, to take advantage, you must make a direct transfer before the year’s end, so you’ll need to contact your IRA custodian or trustee right away to allow time to process your request before the 31st. The IRA-to-charity distributions aren’t subject to the charitable contribution percentage limits nor are they included in your gross income or claimed as a deduction on your return.
  • Splitting Inherited IRAs – Beneficiaries that inherited an IRA in 2010 only have until December 31, 2011 to split the IRA into separate accounts for the beneficiaries. Otherwise, required distributions will be based upon the age of the oldest beneficiary.
  • Roth Conversions – If you are considering converting a traditional IRA to a Roth IRA for 2011, you only have until the year’s end to transfer the funds from the traditional IRA account to the Roth IRA account. If you make the conversion in 2011 and subsequently change your mind, you can reconvert the funds back to a traditional IRA in 2012 and avoid paying the conversion tax on your 2011 return.
  • Required Minimum Distributions (RMD)
  • If you were 70 years old before January 1, 2011, you are required to take a RMD for 2011. If you have not done so already, you only have a few days left to take the distribution. Failure to take a timely RMD will result in a 50% penalty on the undistributed amount!
  • If you inherited an IRA from an individual who had not started taking RMDs, you generally are required to begin distributions from the IRA in the year after the year of the decedent’s death. Thus, where the decedent passed in 2010, you need to take a RMD before the end of 2011. If you have not done so, then you must do it before the year’s end to avoid the 50% penalty on the undistributed amount.
  • If you inherited an IRA from someone who had already begun taking RMDs before they passed, then you may be required to take a distribution in 2011.

If this office can be of any assistance with these issues, please call immediately as the year-end is close at hand.

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