fbpx

The PATH to Tax Savings

PATHThe Protecting American from Tax Hikes Act of 2015  finally brings certainty for taxpayers who want to make charitable contributions from IRAs — a great tax saving strategy .

The Protecting American from Tax Hikes Act (PATH) became law on December 18, 2015 and makes permanent the IRA charitable rollover provision. This means that taxpayers can exclude up to $100,000 from their gross income to be put toward “qualified charitable contributions” from an IRA. However, I am not sure what part of this Act actually protects Americans from tax hikes…

You will remember that when first enacted, PATH was supposedly a temporary measure. However, ever since its enactment in 2006, Congress has incrementally extended the charitable rollover provision every 2 years. The problem was that the extensions always came after the provision’s specified expiration date.  This rather sloppy handling of a valuable tax strategy left taxpayers uncertain as to whether or not this charitable rollover would actually be available from one year to the next.

The first step in the process every taxpayer must meet to employ this strategy is that all distributions must be made to a ‘public charity’ as defined in Section 170(b)(1)(A) of the Act.  Once that step has been taken, Section 408(d)(8) describes how distributions must be made in order to meet certain requirements. These requirements include the following:

  • The distribution must be from a traditional or Roth IRA.
  • The IRA account-holder must be at least 70.5 years old.
  • The distribution must be made directly from the IRA to the charity.
  • The distribution must be deductible as a charitable contribution.
  • The distribution must be otherwise taxable as gross income.

The PATH Act indefinitely extended the charitable IRA rollover and made it retroactively effective to January 1, 2015. Although this legislation complicated things for the 2015 tax year, the permanency of Section 408(d)(8) now offers a level certainty for those who want to make IRA charitable distributions in 2016 and onward.

The Act also addressed important provisions that expand the ways in which a qualified beneficiary can use the distributions from a 529 plan as well as eliminate the in-state plan requirements for ABLE accounts. Since ABLE accounts have a 'payback" provision to the specific state that provided Medicaid and other entitlement benefits, there is concern as to how the states will work together to ensure their reimbursement obligations are met. You may remember my blog on these important savings accounts for the disabled. (https://blog.zarembalaw.com/2015/02/able-accounts-offer-savings-strategy-for-kids-with-special-needs.html).

To learn more about the PATH Act and how it affects your estate plan or to explore the panoply of tools we employ to help you reach your goals, give us a call at 757-259-0707 to schedule your complimentary consultation.

References:  Kitces. com(DECEMBER 16, 2015)  “Congress Approves (Mostly Permanent) 2015 Tax Extenders Legislation For QCDs And More!” and “Summary Of Key Tax Extenders Under H.R. 2029, The Protecting Americans from Tax Hikes (PATH) Act Of 2015”
 

Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment

LIKE THIS POST?

We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Coronavirus/Covid-19
Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.