IRA Charitable Donation
If you dislike taking Required Minimum Distributions (RMDs) from your IRA, or just want to improve your tax situation, you should consider an IRA charitable rollover. The ability to donate your IRA is back as part of the Emergency Economic Stabilization Act of 2008. The IRS officially calls it a Qualified Charitable Distribution (QCD). An IRA charitable rollover lets an individual age 70 1/2 or older withdraw up to $100,000 from an IRA and donate it directly to a charity, school, or other qualified non-profit organization. You're allowed to donate up to $100,000 per person, so if your spouse has an IRA with assets of over $100,000, you can collectively gift up to $200,000 in 2009 from your IRAs.
By donating from your IRA, you can reduce your taxable income by as much as $100,000 ($200,000 if your spouse participates). The rollover amount is excluded from your adjusted gross income (AGI) for the year in which you make the gift. You can also use a QCD to reduce estate taxes and effectively increase your deduction capability.
IRS rules say that you can only deduct the equivalent of 50% of your AGI in charitable gifts per year (although excess deductions may be carried forward for up to 5 years). But, gifts made directly from IRAs don't count toward this 50% limit.
The first step to a charitable rollover is to notify your IRA trustee (custodian) to transfer the funds to the charity of your choice before you take your RMD. Once you have completed that step, the IRA trustee will directly transfer the IRA assets to the charity.
It's important to note that the gift has to be in the form of a transfer directly from the trustee. You can't just take money out of your IRA and contribute it to charity. If you do it that way, the amount you withdraw will be included in your gross income, and you'll owe income taxes on it.
If you sell or donate stock so you can gift a school or charity, you won't get as good of a tax break. Selling stocks with a low cost basis could mean capital gains and it could reduce your itemized deductions. Giving stocks to a school or charity will not trigger capital gains taxes, but under current IRS rules, you're limited to deducting only 30% of the fair market value of the donated stock.
There are some things you can't do with an IRA charitable rollover. You may not roll over the money to a donor-advised fund or a private foundation. You may not use your QCD to fund a gift annuity, charitable remainder trust or similar sort of lifelong income plan. So, if you earn significant income, 2009 and 2010 represent great years to make a charitable donation using an IRA charitable rollover.
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