January 2013

President Obama Signs "American Taxpayer Relief Act of 2012"

Late Wednesday (January 2) afternoon, President Obama signed into law the "American Taxpayer Relief Act of 2012." In general, most of the temporary law changes made by the 2001 and 2003 law changes have been made permanent. For example, the 2001 Coverdell ESA laws are now permanent. Some of the tax changes from the 2009 law, however, are still temporary.

The Qualified Charitable Distribution (QCD) laws have again been extended for two years (2012 and 2013). As in 2010 there are special rules to be applied in two situation.

On January 1, 2013 both houses of Congress passed the "American Taxpayer Relief Act of 2012." Although there has not yet been any formal announcement that President Obama has signed this tax bill into law, he most assuredly will do so.

Qualified Charitable Distributions. The QCD laws have again been extended for two years. QCDs have been authorized again for 2012 and 2013. As in 2010, there are special rules to be applied in two situations.

Any QCD made after December 31, 2012, and before February 1, 2013, shall be deemed to have been made on December 31, 2012.

Any portion of a distribution from an IRA to an IRA accountholder made after November 30, 2012, and before January 1, 2013, may be treated as a QCD if the individual gives cash to the charity and the other requirements in order to have a QCD have been met (other than the rule requiring the payment be made directly to the charity from the IRA custodian/trustee). Presumably, furnishing a check will be deemed to be cash.

As we have discussed in prior guidance and newsletters, a distribution made between January 1, 2012, and December 31, 2012, qualifies as a QCD if the check was made payable to the charity and the other requirements were met as the law change is effective as of January 1, 2012.

The above change is effective after December 31, 2011.

Internal Designated Roth Conversion Contributions.

The law has now been expressly written to authorize a 401(k) plan to be written to allow a participant to instruct that funds be transferred (i.e. converted) from his or her non-Roth accounts into his or her Designated Roth account. The individual is not required to be eligible for a distribution to make this conversion transfer. The individual includes such amount in his or her income for such year and pays the applicable tax. This change is a revenue raiser, at least initially. In addition to 401(k) plans, this change also applies to certain 403(b) and 457(b) plans.

The above change is effective for transfers after December 31, 2012, in taxable years after such date.

1. CWF has a QCD Certification Form for 2012/2013 and we have reinstated our QCD brochure. We also sell e-Forms
2. We have revised our IRA and HSA forms to discuss the 2012/2013 income limits and the fact that the maximum 2013 IRA limits are now $6,500/$5,500 rather than the $6,000/$5,000 limits applying for 2012. We suggest an IRA custodian furnish a 2012/2013 amendment to your existing IRA and HSA accountholders. You can furnish it at the same time you furnish your 2012 fair market value statement in January of 2013.
   
   See (http://www/pension-specialists.com/orderforms/Amendments2012.pdf) for an explanation of when and why IRA amendments need to be furnished and how to order updated IRA/HSA forms
3. When there are tax law changes and regulatory changes, the IRS rules require an IRA custodian/trustee to furnish an amended IRA plan agreement and disclosure statement to IRA accountholders. The IRS has the authority to assess a $50.00 per IRA fine if such an amendment is not furnished. An IRA custodian/trustee using IRA plan agreements written before 2010 has serious compliance problems
4. Be advised we have updated almost all of our IRA and HSA brochures and we have reinstated /updated our brochure explaining Qualified Charitable Distributions. Many times one or more brochures may be added to your January mailings with no additional postage cost. A brochure weighs approximately 3/10 of one ounce.