In December, President Obama reinstated the Individual Retirement Account Charitable Rollover through 2011 as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Originally introduced in 2006 as part of the Pension Protection Act, this stipulation allows individuals aged 70 ½ and over to donate funds up to $100,000 from their IRAs to public charities without being mandated to report it as taxable income. Going forward, this renewed provision could mean a lot of savings to a lot of people.
Rules on Charitable Donations From Your IRA
There are, of course, certain rules to follow if you are hoping to take advantage of this extension:
- You must be at least 70 ½ years old.
- You must be subject to Required Minimum Distribution from your IRA.
- Money is transferred directly from your traditional IRA and/or Roth Account to approved charities.
- Annual donations can not be more than $100,000 per individual.
The new law also has a special rule allowing taxpayers to make retroactive IRA charitable donations in January 2011 and have them count as being made on December 31, 2010. This means if you haven’t reached the $100,000 cap in 2010, you still have the opportunity to do so.
Who Should Take Advantage of the Charitable Rollover Option?
Taxpayers typically must itemize in order to claim charitable deductions. The majority of filers of all ages instead elect to claim the standard deduction. Thanks to the rollover, these filers won’t have to pass up this potential deduction.
Those who face donation limits based on income will also appreciate the rollover. Usually, you cannot donate more than 50% of your adjusted gross income (and sometimes you are limited to 20-30%). However, when the money goes directly from your IRA to the charity as a qualified charitable distribution, it is not counted against that limit because it is not counted in your gross income. If you are someone who usually gives up to half of your adjusted gross income, you can now give up to $100,000 more from your IRS. This could enable you to avoid paying a substantial amount of money in federal income tax on IRA distributions for 2010 and 2011.
Taxpayers who are forced to take minimum withdrawals but don’t really need that income can fulfill up to $100,000 of the distribution requirement with a charitable donation.
In short, you have been given the opportunity to continue making qualified charitable distributions from your IRA or Roth Account to nonprofit organizations without ever having to count that money as income on your tax return. You can do this for the current year and, thanks to the one month 2010 extension, for last year as well.
IRA Charitable Donations Rules Concluded
Since this provision was first put in place, Americans have made millions of dollars of new contributions to worthwhile causes such as social service programs, cultural institutions, schools, and more. This benefits the greater society. And, happily, it also benefits you.
This is most certainly the gift that keeps on giving!
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.