From your IRA to the charity of your choice — the option to make a qualified charitable distribution from your Roth or traditional IRA is once again available. The American Taxpayer Relief Act of 2012 included a provision that again allows taxpayers age 70½ or older to make donations of up to $100,000 directly from their regular or Roth IRAs. Should you take advantage of the new tax rule?
Charitable IRA distributions are penalty-free 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.
Keep in mind that there are unique restrictions on this type of gift. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. Also, if any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. As with any donation, the charity needs to provide you with a tax receipt containing all the proper substantiation for your contribution. Without it, the gift is disqualified. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.
The charitable IRA rollover is a powerful new tool for tax and gift planning. Please call if you’re thinking of donating money from your IRA to charity. We’ll be happy to help you make sure the transfer stays within the rules and to assist you in analyzing whether this option makes sense for you.