I read that this is the last year when proceeds from an IRA can be donated directly to a charity. But is this a good idea? Apparently no tax is owed on the money that goes to the charity, but you don't get a charitable deduction for the money you are giving to the charity. Which is preferable? No tax or a deduction?
- Elaine Hopkins, Peoria, Ill.
No tax is better for several reasons, said James Lange, a Pittsburgh attorney and accountant.
The reader is referring to a provision available for tax years 2006 and 2007 that lets individual retirement account owners age 70 1/2 and older transfer up to $100,000 tax-free from their IRAs to eligible charities.
These amounts are not taxable and count toward an individual's required minimum distribution, but no deduction can be taken for them on the donor's tax return.
Compare that with making an IRA withdrawal as income and then donating the money to charity. Your adjusted gross income - the figure used to calculate limits on itemized tax deductions and eligibility for Roth conversions - would be higher, potentially making you ineligible for them, Lange said. Modified adjusted gross income must be below $100,000 to make a Roth conversion. Personal exemptions begin to phase out when income exceeds $156,400 for single filers and $234,600 for married taxpayers filing jointly.
"You also get into alternative minimum-tax problems" with higher income levels, Lange said.
And here's the kicker: Most charitable contributions can be deducted only up to 50 percent of adjusted gross income, which could be limiting for retirees living on portfolio income who want to give large amounts to charity.
Lange is so excited about the rule allowing these direct rollovers that he has created a Web site petition in hopes that Congress will take notice and extend the rollover provision to people younger than 70 1/2 , take off the $100,000 cap and make it permanent.
For more on the petition drive see www.irapetition.org.
After leaving a job six years ago I kept up my long-term disability insurance policy from UnumProvident (now known as Unum Group). I pay a little over $1,000 a year in quarterly installments. When I turned 55 in 2004 the premiums increased almost astronomically. I understand that the premiums will jump up again when I become 60. It was mentioned in (a recent Your Money) article that there is a way to "freeze" premiums. I would like to know if I qualify for this program, and, if I do, how I would go about implementing it.
- John Crenson, Chicago
Check with Unum to see what terms come with your old group policy from your former employer. Many group policies escalate premium payments by so-called age bands to keep down overall costs for active workers, said Kathy Plummer, Unum's director of disability product development.
The previous article mentioned a type of policy known as non-cancelable disability insurance. With those policies, premiums cannot be raised and the insurance can't be stopped as long as premiums are paid. Most likely your group policy isn't this type of insurance.
The question is: Should you dump the policy and shop for a new one as an individual?
You indicated that you've continued to work as a security officer and expect to continue working, at least part time, after age 66. Depending on your overall financial situation - how much debt you have, whether you have some major expenses ahead - you may want to protect that income for as long as you work.
But there may be other options, said Brian D. Terry, a planner with Cornerstone Financial Planners LLC in Charlotte, N.C.
"I would say to him to get a quote from a few carriers," Terry said. He said it may be difficult and even pricier for you to buy coverage as an individual, so first inquire with Unum to see if there are other options for continuing coverage, such as a longer elimination period or a lower income replacement rate.
Then check with the other carriers to compare those same features. A non-cancelable policy likely could be cost prohibitive for you, Terry said.
Have a retirement question? Write via mail to Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected, we may include you and your question in a future column.