31 December 2008
With every upheaval comes opportunity. The past four months have been hard on even the staunchest defenders of the stock market. Yet our government is attacking this problem with all the tools at hand and some of those tools can benefit you immediately. As we usher in a new year, I would like to share some of the top tax ideas that we are thinking about.
The IRS has increased the annual exclusion to $13,000 for 2009 (from $12,000 for 2008). This means you can give $13,000 per year, per person without any gift tax. There are two considerations that you should take into account for 2009. First, instead of gifting cash, consider gifting depressed securities. You will be able to gift more shares today than you could a year ago and as the market recovers; your gift will grow for the recipient. And secondly, if you are considering a gift for grandchildren (or children) for their college, consider a Section 529 plan. 529 plans allow for an accelerated gift of up to five years – you could put $65,000 ($13,000 x 5) into the plan and essentially move $65,000 out of your estate today that could grow more quickly as the market recovers (there are certain rules to be followed so consult your advisor first).
Another beneficial increase is in the 401(k) contribution limits. In 2009 the maximum contribution for elective deferrals is $16,500 (up from $15,500 in 2008) and if you are over age 50, you can contribute another $5,500 (up from $5,000 in 2008). It may not seem like a lot but at today’s bargain prices in the stock market, I am excited to be able to save more.
In the recent tax bill signed into law on December 23, 2008 (Worker, Retiree and Employer Recovery Act of 2008 – WRERA) there was a tax gift that will last for only one year. For 2009 only, required minimum distributions (RMDs) from retirement accounts are suspended. This means everyone who is over age 70 ½ (or the beneficiary of an IRA) and is taking mandatory withdrawals from their IRA, 401(k), 403(b) or 457 plan does not need to take a distribution in 2009 and therefore will have a lower tax bill (although if you turned 70 ½ in 2008 and were putting 2008’s RMD off until 2009, you still need to take that one). One planning note on this – you still might want to take a distribution if you can do so in a lower tax bracket, particularly if your other income this year is lower.
One of the neatest tax issues that congress gave us back for 2009 only is the ability to give up to $100,000 from your IRA to a charitable organization and not have it count as taxable income. You cannot take a tax deduction for this gift but it is still an effective way to give money to charity. There are a lot of rules around how to do this so speak with your accountant first.
This is just a short list of a few of my favorites. As a new President takes office there will be more bills coming out of congress that will likely add a treasure trove of benefits if you know what to look for. Stay in touch with us or your accountant this year since it promises to help you take back some control in a weak economy.