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CCH can assist you with stories, including interviews with CCH subject experts. Also, the 2012
CCH Whole Ball of Tax
is available in print. Please contact:
Leslie Bonacum
(847) 267-7153
Eric Scott
(847) 267-2179

Visit the CCH Whole Ball of Tax site often as new releases and other updates will be posted throughout the tax season.

CCH provides special CCH Tax Briefings on key topics at

2012 CCH Whole Ball of Tax
Release (08) | Back to WBOT

2012 CCH Whole Ball of Tax

Leslie Bonacum
, 847-267-7153,
Eric Scott, 847-267-2179,

IRA Retirement Planning Changes with the Tax Code  

(RIVERWOODS, ILL., January 2012) – While some may equate retirement planning with stashing money away until needed for the golden years, the tax code offers advantages to more actively managing retirement savings, but taxpayers need to stay up-to-date on the rules as they can change from year to year, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (

For the 2011 tax season, this means taxpayers who converted their traditional IRAs to Roth IRAs in 2010 and elected to pay the taxes over 2011 and 2012 now will have to start paying up. It also means that retirees looking for a way to reduce their taxable income in 2012 may need to look for other options as the direct charitable IRA contribution expired at the end of 2011.

“The tax implications of retirement planning are something people need to look at regularly,” said CCH Principal Federal Tax Analyst Mark Luscombe, JD, LLM, CPA. “For example, Roth conversions will likely again be popular in anticipation of increased taxes in 2013 and the direct charitable IRA contribution, while it’s been around for many years, tends to be extended only for a year or two before it’s up for expiration again.”

Below, CCH takes a look at the tax implications of both Roth IRA conversions and direct charitable contributions for 2011 and 2012.

Roth Conversions

For 2010 only, taxpayers converting a traditional IRA to a Roth IRA had the option of choosing to pay all the income tax on the converted amount in 2010 or splitting the tax bill between 2011 and 2012. Many of these rules also apply to conversions from traditional to Roth 401(k)s.

“When this was initially announced, people were worried that the Bush-era income tax cuts would expire and there would be higher taxes in 2011 and 2012,” said Luscombe. “However, by the time 2010 income tax was due, the tax cuts had been extended through 2012, making the option to delay paying the taxes until 2011-2012 more appealing.”

The tax individuals owe in each year is based on half the converted amount (less any basis). For example, if they had made a non-deductible contribution to a traditional IRA in earlier years before the conversion, they would not again owe taxes on that non-deductible contribution amount. However, the taxes they do owe in 2011 are based on their adjusted gross income (AGI) in 2011; and the amount they owe in 2012 is based on their 2012 AGI. Therefore, their 2011 and 2012 tax bills for the conversions could vary.

One exception to evenly splitting the tax bill between 2011 and 2012 occurs if someone took a distribution from the converted Roth in 2011. In these instances, the taxpayer would owe all the taxes on that distributed amount in 2011.

Looking ahead, Luscombe predicts Roth conversions may again be of interest to taxpayers in 2012.

“Starting in 2013, the 3.8-percent Medicare tax on investment income kicks in and there also is the potential for the Bush-era tax cuts to expire,” said Luscombe.

However, taxpayers should look at their own situation before converting from a traditional IRA to a Roth IRA as there are key differences between the two related to tax consequences of making contributions and taking distributions.

Specifically, depending on a taxpayer’s income and active participant status, contributions to traditional IRAs are deductible from income tax in the tax year in which the contribution is made. However, distributions are taxed as ordinary income.

Conversely, contributions to Roth IRAs are made after-tax and are therefore nondeductible. However, “qualified” distributions are taken free of tax.

As a result, if people believe they’ll be in a higher tax bracket in retirement, they can use a Roth IRA to pay taxes now rather than in retirement. Also unlike traditional IRAs that require people take required minimum distributions (RMDs) starting at age 70½, Roth IRAs do not have RMDs, allowing people to pass the proceeds onto their heirs.

Direct Charitable IRA Contributions – Will They Be Back?

While the direct charitable IRA contribution tax break expired at the end of 2011, there’s a good chance it could be back before 2012 comes to a close, if history repeats itself.

“This is one of 70 some provisions that tend only to be extended for a year or two at a time before it is set to expire and is then again extended,” said Luscombe. “It’s a helpful tool for seniors trying to lower their AGI to make sure they can take advantage of other tax benefits and it’s liked by charities that benefit from the donations.”

Generally, most IRA distributions are taxable and they must begin, in specified amounts, when an IRA owner reaches age 70½. However, this required distribution means some seniors find that they have to pay tax on income that they don’t really need. Using the direct charitable IRA contribution, they can avoid the tax by making a distribution of up to $100,000 directly to a charity. They can then exclude the amount of the distribution from their income.

However, the law doesn’t allow a double benefit. For example, taxpayers can’t exclude the distribution from their income and then also take an itemized deduction for it.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business ( is a leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. CCH is based in Riverwoods, Ill. Follow us now on Twitter @CCHMediaHelp. Wolters Kluwer ( is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands.

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