Pub. 2 2012-2013 Issue 5

10 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S The permanent ESA provisions include the following. • Annual $2,000 ESA contribution limit • Higher income thresholds for contribution eligibility • Contribution deadline of the contributor’s tax return due date, excluding extensions • Ability to make ESA contributions after age 18 for special needs individuals • Ability for non-person entities to make ESA contributions • Treatment of elementary and secondary school expenses as qualified education expenses • Treatment of computer and related technology expenses as qualified education expenses • Coordination with American Opportunity and Lifetime Learning credits and state qualified tuition programs Quali fi ed Charitable Distributions Extended Through 2013 ATRA also extends qualified charitable distributions (QCDs) from Traditional and Roth IRAs for two years: De- cember 31, 2011, through December 31, 2013. This popular tax break expired at the end of 2011 when Congress failed to act on bills in both the House and Senate to extend the provision. This provision allows IRA owners age 70½ or older to take a tax-free distribution from their Traditional or Roth IRA if paid directly to a qualified charity, subject to a $100,000 annual limit. The provision also contains special transition rules to enable IRA owners to have charitable do- nations made before February 1, 2013, treated as 2012 QCDs. Under the special transition rules, IRA owners may make QCDs (paid directly from the IRA to the charity) through January 31, 2013, and treat the distributions as QCDs for 2012. This special rule applies only for distributions treated as QCDs for 2012. QCDs for 2013 must be made by December 31, 2013. IRA distributions paid directly to IRA owners in De- cember 2012 (rather than paid directly from the IRA to the charity) also may be treated as 2012 QCDs if paid (indirectly) by the IRA owner to the charity by January 31, 2013. As in previous years, a QCD may be used to satisfy an IRA owner’s required minimum distribution (RMD) for the applicable year if the QCD amount is equal to or greater than the RMD amount and taken by December 31 of that year. However, the ATRA provision allows a taxpayer who failed to take his RMD in 2012 to treat a January 2013 payment as a 2012 QCD. This will satisfy his 2012 RMD requirement if the amount meets or exceeds the 2012 RMD. But a January 2013 payment treated as a 2012 QCD cannot satisfy the tax- payer’s 2013 RMD. In fact, a January 2013 payment treated as a 2012 QCD must be subtracted from an IRA’s December 31, 2012, balance for purposes of calculating the 2013 RMD. Taxpayers treating a January 2013 payment to a charity as a 2012 QCD should be aware that they will need to rec- oncile this on their 2012 Form 1040, U.S. Individual Income Tax Return, by entering the QCD amount on Line 15a, and entering the letters “QCD” next to Line 15b. They also may need to file a 2012 Form 8606, Nondeductible IRAs , with their 2012 Form 1040. Financial organizations that administer ESAs and IRAs will want to have a good understanding of these latest legis- lative changes, not only to ensure compliance, but to better serve their clients. Q Dennis Zuehlke is Compliance Manager for Ascensus in Middleton, Wisconsin. Mr. Zuehlke provides clients with technical support on tax-advantaged accounts (including individual retirement accounts, health savings accounts, simpli fi ed employee pension plans, and Coverdell education savings accounts), and information reporting and tax withholding issues. He is a frequent national speaker on compliance-related issues and retirement savings trends within the fi nancial services industry. Q FISCAL CLIFF – continued Sierra Ridge Networks utilizes a personal approach — offering complete IT banking solutions to help your business climb to it ’ s O ur engineers carefully consider each clients unique needs-whether they include network development, IT capability maximization, improved support, a competitive edge or better security. Because we employ this process, we're able to provide you with a rock-solid solution. 303.357.0301 www.SierraRidgeNetworks.com Your IT Banking Professionals