Fiscal Cliff Bill Affects IRAs and Coverdell ESAs
The American Taxpayer Relief Act of 2012 (ATRA), signed into law on January 2, 2013, contains
significant changes to IRAs and Coverdell education savings accounts (ESAs). ATRA revives a number of
expired or expiring tax provisions and seeks ways to generate federal tax revenues through new
taxpayer incentives. The following provisions of ATRA will directly affect many Americans who are
saving through retirement plans and education savings programs.
Qualified Charitable Distributions Extended, Transition Period Allowed
The IRA qualified charitable distribution (QCD) option allows taxpayers age 70½ or older to use up to
$100,000 of IRA assets per year as a tax-free contribution to qualifying charities. Payments generally
must be made directly from the IRA to the charity. A QCD can also be used to satisfy any IRA required
minimum distributions (RMDs) required for the year. The QCD option is available for any qualifying IRA
distributions during 2012 and 2013 calendar tax years. (This provision had expired as of December 31,
2011.)
2012 QCDs Made in December 2012
IRA distributions paid to IRA owners in December of 2012 (rather than paid directly to a charity) are
eligible to be treated as 2012 QCDs if the IRA owner indirectly pays the QCD to the charity before
February 1, 2013. If paid indirectly, the contribution to the charity must be paid in cash.
2012 QCDs Made in January 2013
An IRA owner may choose to treat an IRA distribution paid to a charity in January of 2013 as a 2012
QCD.
A 2012 QCD made in January 2013 will satisfy the IRA owner’s 2012 RMD if the QCD amount equals
or exceeds the 2012 RMD.
A 2012 QCD made in January 2013 cannot satisfy the IRA owner’s 2013 RMD.
A 2012 QCD made in January 2013 must be subtracted from an IRA’s December 31, 2012, balance
for purposes of calculating the 2013 RMD.
Reporting Requirements
Financial organizations must report 2012 distributions on a 2012 Form 1099-R, Distributions From
Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Financial organizations must report 2013 distributions (including any 2012 QCDs made in January
2013) on a 2013 Form 1099-R.
An IRA owner must report 2012 QCDs made in January 2013 on the 2012 Form 1040, U.S. Individual
Income Tax Return, by including the full 2012 QCD amount on line 15a, not including any amount on
line 15b, and writing the letters “QCD” next to line 15b.
An IRA owner must also a report 2012 QCD made in January 2013 on the 2013 Form 1040. The IRS
will include these reporting requirements in the 2013 Instructions for Form 1040.
(1/2013)
©2013 Ascensus, Inc.
An IRA owner must file Form 8606, Nondeductible IRAs, with the 2012 Form 1040 if
o
the 2012 QCD was from a Roth IRA; or
o
the 2012 QCD was from a Traditional IRA, the IRA owner has basis in any Traditional IRA, and
the IRA owner took a 2012 distribution in addition to the QCD.
The 2012 Instructions to Form 8606 will contain reporting requirements for 2012 QCDs made in
January 2013.
ESA Provisions Made Permanent
When the Economic Growth and Tax Relief Reconciliation Act of 2001 became effective on January 1,
2002, it temporarily changed certain ESA provisions. Consequently, certain ESA provisions were first
scheduled to expire after 2010, and then again after 2012 following a two-year extension. But thanks to
the passage of ATRA, the ESA provisions that were set to expire on December 31, 2012, are now
permanent.
The permanent provisions include the following.
The ESA annual contribution limit will remain at $2,000 per child, per year.
Contributions for special needs individuals may be made after age 18.
Special needs individuals are not required to distribute or roll over their ESA assets to a family
member upon turning age 30.
Anyone, including a nonperson entity (e.g., a corporation) may make ESA contributions.
The EGTRRA-increased income limitation for determining a married person’s eligibility to make ESA
contributions is now permanent.
The deadline for making ESA contributions is the contributor’s tax return due date, not including
extensions (e.g., April 15 for individual contributors).
The deadline to correct current-year ESA excess contributions without penalty is May 31.
Qualified education expenses will continue to include elementary and secondary school expenses
(this includes computers and related technology).
Taxpayers may claim the American Opportunity (formerly named HOPE) credit or Lifetime Learning
credit in the same year as ESA distributions as long as the credit and distributions are not used for
the same qualifying expenses.
Contributions may be made to both ESAs and state-sponsored qualified tuition programs in the
same year on behalf of the same person without exposure to the six percent excess contribution
penalty tax.
(1/2013)
©2013 Ascensus, Inc.