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Take Advantage of the IRA-to-Charity Transfer

For 2013, if you are age 70½ and over, you are allowed to make direct distributions (up to $100,000) from your Traditional or Roth IRA account to a charity. The distribution is tax free, but there is no charitable deduction, and the distribution can count toward your required minimum distribution (RMD). This provision can be very beneficial for a taxpayer who is inclined to make substantial charitable contributions for the year and:

  • Receives Social Security (SS) benefits, and the taxpayer's required minimum distribution for the year causes an increase in the tax on the SS benefits; or
  • Is unable or is marginally able to itemize deductions for the year.

Example: A 75-year-old married taxpayer's adjusted gross income (AGI) before taking his RMD is $28,000. His RMD for the year is $10,000, and he wishes to contribute $8,000 to the building fund for his house of worship. If he takes his RMD and then contributes the $8,000 to the building fund, his AGI will be $38,000; it will be more, if his income includes SS benefits. On the other hand, if he makes a direct transfer of the $8,000 to his house of worship, his AGI would only be $30,000; some or all of his SS benefits would be tax free, depending how much he receives in SS benefits.

Arranging a direct transfer may require some extra time, so if you want to donate some of your IRA to a charity, don't wait until the last minute to make arrangements with your IRA trustee to do so.

The higher a taxpayer's income tax bracket, the greater the tax benefits when making a direct IRA-to-charity distribution. Please contact this office if you have questions related to the tax benefits derived from this strategy.