A recent change in the charitable contribution rules provides a potential tax planning opportunity involving your individual retirement account. If you’re 701/2 or older, you can make contributions of up to $100,000 directly from your IRA to a qualified charity.
Charitable IRA distributions are withdrawals that are neither included in, nor deducted from, your taxable income. Better yet, such payments qualify as required minimum distributions (RMD) from your retirement account. Thus, if you do not need the IRA distribution to live on, and you wish to make a donation, a charitable IRA rollover might be a win-win strategy.
Charitable rollovers also make sense when the inclusion of the IRA distribution in your income would result in the phasing out of other deductions, such as personal exemptions or itemized deductions. Non-itemizers also benefit since the donated amount is excluded from their taxable income.
* Restrictions. There are restrictions to be aware of. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. If any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.
This provision is scheduled to expire this year, so now’s the time to act. If you would like details, give us a call.