Included in federal tax law changes enacted in December 2010 (the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act [“Act”]) was an extension of the Charitable IRA Rollover provisions first enacted in 2006. Those provisions allow certain IRA owners to use taxable IRA funds to make charitable gifts without negative tax consequences. The 2010 extension expires December 31, 2011.
Generally, IRA owners must report distributions out of their IRA as income. A donation of an IRA distribution to charity is a charitable contribution for income tax deduction purposes (if you itemize); however, the increase in income and restrictions on the amount of charitable gifts that may be deducted in a given year could result in the IRA withdrawal followed by charitable gift not being a “wash” for federal income tax purposes.
The Charitable IRA Rollover provisions permit a person who is 70 ½ or older to make tax-free gifts in any amount up to a total of $100,000 from a traditional or Roth IRA to qualified charities (“qualified charitable distributions”). The IRA owner is not entitled to a charitable income tax deduction for the qualified charitable distributions, but such distributions are not included in the IRA owner’s income.
The distributions must be made directly from your IRA to the qualified charitable organization. A distribution to the IRA owner/donor, followed by a gift to charity, does not receive the special treatment provided by the Act.
Distributions from 401(k), 403(b) or other types of retirement accounts are not eligible for this special treatment.
Your church and our KBC and SBC agencies and institutions are “qualified charitable organizations”. Private foundations and donor advised funds are not.
While qualified charitable IRA distributions are not included in the donor’s income for income tax purposes, they are treated as part of the donor’s required minimum distributions. Therefore, those 70 ½ and older who must take required minimum distributions from an IRA and plan to make contributions to charity should strongly consider taking advantage of the ability to use their IRA as the source of making those charitable gifts this year.
For those age 70 ½ with IRA assets, make sure you take a look out this “window of opportunity” before it closes on December 31, 2011.
The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.