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IRA provision benefits charities, gives owners tax relief

March 31, 2016

Financial laws require Individual Retirement Account (IRA) owners who are age 70½ to take a minimum distribution from their account(s) each year, producing ordinary – and usually minimal – income for the recipient. But now, after years of congressional mights and maybes about the future of qualified charitable IRA distributions, there’s another, more beneficial route.

With permanent passage of the Protecting Americans Against Tax Hikes (PATH) Act, IRA owners are allowed to make a “qualified charitable distribution” of up to $100,000 per year from their IRA custodian directly to a qualified charity such as Family & Children’s Place. While there is no charitable deduction benefit from the contribution, due to it not being considered taxable income, there still is significant benefit.

The qualified charitable deduction fulfills the required minimum required distribution, and transferring the funds directly to a charity rather than taking the distribution, and then writing a check to charity typically lowers the holders’ adjusted gross income, providing savings in ordinary tax and alternative minimum tax.

It provides a genuine benefit – giving a charity durable income it can use to pursue its cause, one the owner has a passion in or for, and providing tax savings, protecting net assets and helping provide for the future, not only of the IRA owner, but his or her descendants as well.

The only significant limiting factors are the designated charity cannot be a supporting organization – one that uses assets to support or benefit a public charity or charities, a donor-advised fund, private foundations or distributions from Simplified Employee Pensions or SIMPLE IRA.

Other benefits are:

  • Your gift is not subject to the 50 percent deduction limits on charitable gifts
  • You can decide how your gift is used
  • You further the work and mission of Family & Children’s Place and avoid potential financial penalty via taxing.

With the option made permanent, IRA owners 70½ and older can make direct gifts to charity and then, itemizing deductions on their 1040 personal income tax form, and come out ahead making gifts this way rather than taking withdrawals from their traditional IRA, paying income taxes, and then making a gift to charity.

If you have any questions about an IRA charitable rollover gift, contact your financial adviser, who can guide you through the process to make a qualified charitable deduction.