IMPACT. The Act provides special transition rules. One rule allows taxpayers to re-characterize distributions made in January 2013 as made on December 31, 2012. The second rule permits taxpayers to treat a distribution from the IRA to the taxpayer made in December 2012 as a charitable distribution, if transferred to charity before February 1, 2013. For an example of the second rule,

BACKGROUND:  Tom and Mary Jones (fictitious names) are both over 70 ½ and own IRA accounts that require them to take Minimum Required Distributions.  They received $6,000 of such distributions in December 2012.  Their 2012 income from interest, dividends, pension, and taxable portion of Social Security equals approximately $76,000.  Because Tom and Mary do not have a mortgage, they no longer itemize their deductions even though they gift over $6,500 per year to their church and favorite charities.  Tom and Mary’s Federal Income Tax on Form 1040 equals $6,514.

ACTION:  Under the new tax law passed about two weeks ago to avert the Fiscal Cliff, Tom and Mary can write up to $6,000 of checks to their church and favorite charities before January 31, 2013 and reduce, by like amount, the $6,000 of Minimum Required Distribution that occurred in December 2012.  Tom and Mary will save $1,665 of Federal Income Taxes if they write checks to their church and favorite charities equaling the full $6,000.

DETAILS:  here are some additional details you should know:

• Only those IRA Minimum Required Distributions made in December 2012 qualify.  If a distribution was made in November 2012 or earlier, it does not qualify.


• Only checks written to charitable organizations between January 1, 2013 and January 31, 2013 qualify.


• Distributions from Beneficiary IRA’s do not qualify for this special treatment.


• NOTE:  if the above fact pattern does not work for you because you received your Minimum Required Distribution before December, keep in mind that Minimum Required Distributions in 2013 can also be excluded from income; except, in 2013 you must have the IRA Custodian make the Minimum Required Distribution (or any part) payable to your favorite charitable organization. 

In recent weeks, hedge funds and individuals—both unenthusiastic participants in the 2012 equity rally—have shifted money out of fixed-income investments and into stocks, pushing up shares sharply.

Small-cap stocks, in which individual investors often are active, again outperformed last week. The first fourth-quarter earnings reports released—though just a handful—were good enough to boost stocks, or at least not sidetrack the rally.

Last week, the Dow Jones Industrial Average rose 53 points, or 0.4% to 13,488.43, while the S&P 500 gained 6, or 0.4%, to 1472.05, and hit a five-year closing high of 1472.12 Thursday. It’s just 6% below its all-time high of 1565, set in 2007. The Nasdaq Composite added 24 points, or 0.8%, to end at 3125.63. And the Russell 2000 index finished at 880.77, up 0.2%, and near an all-time high.

Among the sectors that rallied, notes Stephen Massocca, a portfolio manager at Wedbush Equity Management, were the high-yielding master limited partnerships (MLPs) and real-estate investment trusts (REITs) that are preferred by individual investors. A bit more than two dozen S&P 500 companies reported fourth-quarter results, and a lack of bad numbers helped support the market, he says. In addition, the recent increase in money flows into mutual funds in instructive, he says. According to EPFR Global, which tracks fund flows, in early January actively managed U.S. equity funds posted their biggest inflow in over a decade.

At the same time, “we’ve been seeing hedge-fund flows coming back in,” adds David Abuaf, chief investment officer of Hefty Wealth Partners. His anecdotal report is supported by data from Carpenter Analytix, which tracks hedge funds. Founder Robin Carpenter writes that the funds, which built equity positions through 2012, now have historically high levels of stocks. They’ve cut their fixed-income positions.

The broader narrative, adds Peter Kenny, managing director of institutional sales at Knight Capital Americas, is that investors are getting more comfortable with the economic picture and what that means for equities.

“It’s a grand party,” but there’s some risk, and the biggest hurdle remains ahead in late February when the government must address the debt ceiling and potential spending sequestrations. Carpenter adds that historically high hedge-fund equity levels often precede downdrafts. Shorter-term, stocks face the technical challenge of overcoming the old intraday high of 1474, reached in September. Should they fail to burst through, a pause in the rally wouldn’t be out of the question. A push through would bring in more investors (Source:  Barrons Online).