Distributions from IRAs, 403(b) must be separate

Q: I have three IRA accounts as well as a 403(b). I turn 70½ this year and will begin taking the required minimum distributions from my retirement accounts. I want to confirm that the advice I received is correct. I was told that I could take the minimum distributions from just one of the IRAs if I want. Can I also take the 403(b) distribution

from the same IRA?

A: The first statement that you made is correct. You combine all three IRAs to determine the required minimum distribution (RMD). However, it does not matter from which IRA you take the RMD. If you prefer, it can be just one of the accounts. The 403(b) is different. You will separately compute the RMD from the 403(b), and the distribution must be taken from the 403(b).

Q: My wife and I are looking at houses, and we will need a mortgage to buy one. My concern is that the tax reform discussions are vague about which deductions will be eliminated. The tax benefit for mortgage interest will be very helpful to us. If they do eliminate the mortgage deduction, do you think that people who have already borrowed will be protected in some way?

The current discussions of tax reform would protect the home mortgage interest and charitable contribution deductions. Therefore, it does not appear that your deduction would be in jeopardy. If they did eliminate or limit the benefit for home mortgage interest, I would definitely expect that existing loans would be grandfathered.

One thing that might affect you is a proposal to increase the standard deduction. Taxpayers deduct either the standard deduction or their actual itemized deductions, which include the mortgage interest deduction. This means no tax benefit is obtained until the aggregate itemized deductions exceed the standard deduction. A higher standard deduction may cause the effective benefit from your mortgage interest to be reduced.

In short, I would not put off getting the mortgage because of any concerns you may have about the ultimate composition of tax reform.

Q: My mother recently passed away, leaving an estate of about $180,000. This was left equally to me and my brother who lives in Oregon. Another sibling died in 2009. Mom’s will did not make any allowance for my children or my brother’s children, so it also said nothing about our deceased sister’s two children. My brother and I would like to give our niece and nephew $60,000, which is what we believe their mother would have received had she survived. Will they have to pay tax on a gift of $60,000?

A: No, your niece and nephew will have no tax due on a gift from you and your brother. However, there is a gift tax, and you and your brother may have to file gift tax returns. You should owe no gift tax but the returns, made on form 709, may be required.

Each person is allowed to give as much as $14,000 per year to another person without the need to file the gift tax return, provided the gifts qualify as what the tax law calls a “present interest.” This means that the recipient of the gift can presently use the property.

There are different ways to qualify for this $14,000 exclusion if the niece and nephew are minors. However, if you are able to simply give them each $30,000, the exclusion will apply. If you give your nephew $15,000 and your niece $15,000, you are just above that $14,000 exclusion amount. The same is true for the proposed gifts from your brother.

Since we are at the end

of the year, the easiest “fix” for this is to split the transfers across two tax years — 2017 and 2018. You will then easily qualify for the $14,000 exclusion. It is also possible to split a 2017 gift with your spouse, if you are married. The problem is that an inheritance is separate property, and you will need to file a gift tax return so your spouse can make this election.

To avoid any gift tax filing, I suggest that you give the $15,000 over two years, some in 2017 and the rest in 2018.