Our weekly roundup of tax-related investment strategies and news your clients may be thinking about.
A Roth IRA can be a gift that clients can give their loved ones who will be graduating from college, according to Bloomberg. Unlike a traditional IRA, which is created with pre-tax money, a Roth IRA is funded with after-tax money, allowing the recipient to tap the funds easily. Also, a Roth IRA offers tax-free growth through compounding while withdrawals are nontaxable in retirement. "It will cause [your child] to think fondly of you when they're in their seventies and start to withdraw the 50-year compounded nest egg you created for them," says a financial planner. -- Bloomberg
Reporting a required minimum distribution to charity on your tax return
Retirees who reach 70-½ can make tax-free donations to charities directly from their IRA and count the gifts as part of their required minimum distribution without including it in their adjusted gross income, according to Kiplinger. While retirees cannot do the same with their 401(k) assets, clients may consider rolling over some funds from the plan to their IRA so they can direct the RMD to a qualified charitable organization. The RMD should be reported as gross distribution on Line 15a of Form 1040 but should be identified as a qualified charitable distribution on Line 15b. -- Kiplinger
Be sure to explore the investment options in your health savings account
Clients with high-deductible health plans are advised to open a health savings account and make the most of the account's investment options, according to The Street. Very few HSA accountholders are using the investment options available to them. As a result they are missing out on the potential for triple tax advantages, something not found in other retirement savings vehicles. -- The Street
Exposing the hidden tax costs of renouncing U.S. citizenship
Clients should consider the tax consequences if they decide to give up their U.S. passports for good, according to CNBC. Renouncing U.S. citizenship under the right circumstances can go a long way toward reducing a client's IRS bill. Also, there are estate and gift tax considerations. -- CNBC