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 In This Update:
  • Q of the Month:
    Can I Use My Roth Contributions to Buy My First House?
  • Key Focus:
    10 Ways You Might Pay More Tax in 2013
  • Ruling to Remember:
    Divorce Gets Ugly with Pension Plan

 Resources  Expert


?? Question of the Month: Can I Use My Roth IRA Contributions For a First Home?

Q: I am 26 and I have been contributing to my Roth IRA since I was 18. Now, I am looking to purchase my first home and was considering taking funds from my Roth IRA. The 5-year rule is confusing to me and I am not sure how this applies to me, given the circumstances. Are the funds in my Roth IRA penalty free, and tax free when withdrawn for the purpose of buying a first home?

A: You can always withdraw your contributions to a Roth IRA tax and penalty free. In your case, the 5-year rule for withdrawing up to $10,000 of earnings tax and penalty free has been satisfied. Because you will use the funds for a first-time home purchase ($10,000 lifetime limit) and you started a Roth IRA more than 5 years ago, the withdrawal of earnings will be tax and penalty free (known as a qualified distribution).



Charitable IRA Rollovers for 2012?

The November issue of Ed Slott's IRA Advisor Newsletter looks into planning with a provision that doesn't exist.

As the end of 2012 approaches, clients who are thinking about making a charitable donation for the year might want to use IRA funds to do so. Although the special tax break for charitable IRA rollovers, known as "qualified charitable distributions" (QCDs) in the Tax Code expired last year, Congress has discussed renewing this provision and there is a chance it will be reinstated for 2012. This reinstatement could even happen before year end.

In this issue, Ed Slott and his technical team talk about the current status of QCDs, charitable donation planning strategies and more.


Inside Ed Slott's IRA Advisor Newsletter

Charitable IRA Rollovers for 2012?

Planning With a Provision That Doesn't Exist

  • Current Status of QCDs
  • Charitable Contributions and Deductions
  • Higher Taxes in 2013
  • Using IRA Funds in 2012 to Make Charitable Contributions Without QCDs
  • A Brief History of Qualified Charitable Distributions
  • Qualifying Charities
  • Age 70 1/2 Rule
  • Direct Transfer to Charity
  • IRAs Only
  • RMDs
  • Wait-and-See Strategy for RMDs
  • $100,000 Limit
  • Special Tax Rules
  • Tax Reporting for a Qualified Charitable Distribution
  • Advisor Action Plan

Guest IRA Expert
Natalie Choate, JD
Nutter McClennen & Fish LLP

Look Before You Leap - Moving Funds from Plans to IRAs

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November Key Focus

10 Ways You Might Pay More Tax in 2013

The election is now over, and President Barack Obama has been reelected for four more years. It is time to look forward.

There are an abundance of tax law changes scheduled to take effect in 2013 and they are almost universally going to take a bigger chunk of your money and hand it over to Uncle Sam. Old or young, rich or poor, it really won't matter. If nothing changes between now and the end of the year, you are likely to pay more in taxes next year than you are this year. With that in mind, let's take a look at 10 ways you could very well pay more tax in 2013 than you will in 2012.

Ordinary Income Tax Rates
The Bush era tax cuts that were extended in 2010 are set to expire at the end of this year. If that happens and Congress takes no action, rates for most taxpayers, on both ends of the income spectrum, would increase. For instance, right now those who pay tax at the lowest rate pay just 10% in federal income tax. That number would jump to 15% next year. Similarly, the very highest income tax rate one can pay in 2012 is 35%. The highest rate in 2013, if nothing changes, will be 39.6%.

Sources of income that are subject to ordinary income tax rates include your salary, self-employment income, ailimony, interest, short-term capital gains and the portion of your Social Security included in gross income.

Capital Gains
If you hold a capital asset for longer than one year, you get a special tax break on any profit when you sell it. Instead of having the profits subject to ordinary income tax rates, you get to pay tax at long-term capital gains rates, which are more favorable. Like the ordinary rate increases we are set to see in 2013, the changes in the long-term capital gains rates will impact you, no matter what end of the income spectrum you happen to be on. Currently, if your marginal ordinary rate (the highest ordinary income tax rate you pay tax at) is 10% or 15%, you don't pay any tax on long-term capital gains. If nothing changes, that nice 0% rate (sure can't beat that) will become up to 10% next year. At the other end of the spectrum, the maximum long-term capital gains rate is 15% (a savings of almost 60% when compared to the top ordinary rate of 35%). Barring Congressional action between now and next year, the top long-term capital gains rate will be 20%.

CLICK HERE to view all 10 ways you might pay more tax in 2013. This article appeared during Election Week Coverage at The Slott Report (

Ruling to Remember

William Foster v. PPG Industries, Inc. v. Patricia Foster

William Foster worked for PPG Industries, Inc. from 1988 to 1999 and participated in its employee savings plan, a 401(k) pension plan. The plan required each participant and beneficiary to keep the Plan Administrator advised of his correct address.

Foster and his wife, Patricia, resided together in Tulsa, Oklahoma from 1993 until their divorce in 2004. He had received plan-related documents, including a Summary Plan Description, instructing him to make sure the current address on file is correct at all times, especially upon divorce, moving or termination.

His divorce became final in July 2004, but he never advised his old company that he had moved out of the martial residence or that his mailing address had changed. In 2005, documents were mailed to the address on the file that described changes in the way plan participants would access their savings plan accounts. Among other things, the documents explained that a User ID created by the participant would replace the participant's Social Security number for ID purposes.

Patricia Foster received these documents, created an ID, requested a temporary password, changed the permanent address on the account to her P.O. Box and made a withdrawal of $4,000 from the account. Over the next several months, Patricia withdrew all of the available funds totaling over $42,000.

William Foster sued his former employer, demanding it pay back the money withdrawn by his ex-wife. Seems like an open and shut case, right? Wrong. The court ruled that the provisions in the plan documents made it clear that "any wrongful payment of the Plaintiff's benefits in this instance (was) due only to Plaintiff's failure to notify the Plan of his change of address coupled with the conduct of the Plaintiff's ex-wife."

Make sure you CHANGE the beneficiary form after life events and update your address. It will help avoid problems such as the one described above.