March is women’s history month. More than a century before women were given the right to vote, Abigail Adams became one of the first major female investors in American history. America’s second First Lady, she managed the family finances and did so quite well, accumulating a sizable estate through bond trading and other shrewd investments.
The IRS requires IRA owners to begin taking taxable distributions from their IRAs after they turn 70 ½. Failure to do so can result in an IRS penalty equal to 50% of your Required Minimum Distribution amount (aka RMD).
To avoid this penalty you must take your RMD no later than April 1 of the year after the year you turn 70 ½. If you turned 70 ½ this year, then your first RMD is due no later than April 1, 2017.
First, the income limits for people wishing to make Roth IRA contributions have changed.
In 2016 married couples filing jointly may contribute to a Roth IRA if their modified adjusted gross income (MAGI) is under $184,000. If your MAGI exceeds $194,000, you may not contribute to a Roth IRA. When your income falls in between those numbers, you may do a partial contribution.
Likewise, the income phase-out for deducting a traditional IRA if you do not have a retirement plan at work, but your spouse does, begins at $184,000 of modified adjusted gross income and ends at $194,000.
For singles the income limits are half of the amounts listed above.
Just like last year, IRA contribution amounts are still limited to $6,500 ($5,500 if you are under age 50 this year).
Second, Qualified Charitable Distributions or QCDs are back – permanently. In the past several years Congress has allowed QCDs but only at the last minute and never with any indication of what they intended to do going forward. Now it’s clear.
The PATH Act of 2015 made QCDs permanent.
Qualified Charitable Distributions allow IRA owners over the age of 70 ½ to directly transfer up to $100,000 from their IRA, tax free, to a qualified non-profit. QCDs can be an effective strategy for charitably inclined IRA owners who do not itemize their tax deductions or who are trying to keep their adjusted gross income as low as possible.
Third, the PATH Act also expanded penalty-free distributions for higher education. The definition of higher education expenses now includes computers and related equipment, software and internet expenses.
In the past these expenses were allowed only if required by the college your student attends, if used primarily by the student during the tax years in which they are in college. Now you may take penalty-free (but not tax-free) distributions to pay for these expenses even when they are not required by your student’s college.