Investing & Taxes

Taxes can have a big impact to your bottom line, so it's important to understand how tax rules and concepts affect your investments.

The American Taxpayer Relief Act of 2012 extended or made permanent many of the tax provisions established from previous legislation. Below, we provide a summary of the provisions most relevant to mutual fund investors.

Federal Individual Income Tax Rates

The income tax rate brackets passed in 2001 are now permanent and include a new rate of 39.6%. The income ranges for each bracket will be indexed for inflation going forward.

Related Provisions:

  • The marriage penalty is permanently repealed for taxpayers in the 10% and 15% income brackets. The standard deduction for married taxpayers in those brackets who are filing jointly is now 200% of single filers.
  • The child tax credit for 2017 is $3,000.
  • Backup withholding will remain at 28%. Backup withholding generally applies to taxpayers whose Taxpayer Identification number does not match IRS records. It also applies to taxpayers who have under-reported their income. Individuals subject to backup withholding may also be subject to state backup withholding.

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax is a parallel tax system that was created to keep high income individuals from avoiding taxes through various deductions and exemptions.

The exemption amounts are increased as shown below and will be indexed for inflation going forward. This provision is retroactive beginning with the 2012 tax year.

Filing Status 2017 Exemption Amount 2017 Phase Out Ranges
Married Filing Jointly & Surviving Spouse $84,500 $160,900 - $498,900
Married Filing Separately $42,250 $80,450 - $249,450
Single or Head of Household $54,300 $120,700 - $337,900

Estate, Gift and Generation Skipping Tax Exemptions

Estate assets are taxed at a top rate of 40% with an exemption limit of $5,490,000 for 2017 (based on share price as of the decedent's date of death, including adjustments). This amount will be indexed for inflation going forward.

Qualified Charitable Distributions

A qualified charitable distribution (QCD) is a tax-free distribution from an IRA to a qualified charity. QCDs can be used to satisfy an investor’s required minimum distribution (RMD) up to $100,000 per taxpayer, per taxable year. To request a QCD, please use this form.

Keep these QCD rules in mind:

  • Payee details: Checks from the IRA must be made payable to the qualified charity. If a check is made payable to the account owner, the distribution would not qualify as a QCD and would be treated as taxable income.
  • Age: The account owner must be age 70½ or older.
  • Timing: The funds must be withdrawn by December 31 each year.
  • Account types: Eligible account types generally include: Rollover, Traditional and Roth IRAs, as well as inactive SEP and SIMPLE IRAs.*
  • Reporting: We will report your QCD on Form 1099-R for the calendar year the distribution is made. You should keep any receipts of the donation from the charity for your records.

Contact a tax advisor or visit the IRS website for more details about QCDs.

*Per the IRS, a SEP or SIMPLE IRA is considered active if it has been maintained under an employer arrangement under which an employer contribution is made for the plan year ending with or within the IRA owner’s taxable year in which charitable contribution would be made.

Net Investment Income Tax

The Net Investment Income Tax went into effect on January 1, 2013. The 3.8% Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. Visit for more information.

In-Plan Roth Conversions

Participants in 401(k), 403(b) or 457(b) Plans can convert any amount in a non-Roth account to a Roth account if the plan permits. The requirement that an account balance can only be converted to Roth if the amount is otherwise distributable is being eliminated. This is a permanent provision, effective for transfers after December 31, 2012.

Coverdell Education Savings Account (CESA) Limits

The annual contribution limit for CESAs is fixed at $2,000. The contribution deadline for this account type is April 15th of the following year.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.