Tax-Free IRA Donations – Another Way to Give
DID YOU KNOW YOU CAN MAKE A TAX-FREE DONATION DIRECTLY FROM YOUR IRA?
An IRS provision allows retirees age 70 1/2 years and older to donate up to $100,000 tax-free from their IRA each year to a qualified charity, such as American SPCC.
Generally, when you take a distribution from your IRA, it is treated as taxable income. Under this provision, the assets are excluded from income if the distribution is made directly to charity.
The distribution is not included in your income so you avoid all the effects that a regular IRA withdrawal creates, including taxes on Social Security benefits. Distributions excluded from income are also equivalent to a 100% deduction. Normally, charitable contribution deductions are limited to a lower percentage (or are eliminated altogether) for taxpayers who do not itemize and take the standard deduction.
GUIDELINES FOR DONATING IRA DISTRIBUTIONS TO A CHARITY
IRA account owner must be age 701/2 or older at time of IRA distribution in order to take advantage of this provision. Rule applies only to Traditional, Rollover, and Roth IRAs. SEPs and SIMPLE IRAs are generally excluded. Distributions of non-deductible IRA contributions also do not qualify.
Maximum amount of a taxpayer’s qualified charitable distribution must not exceed $100,000 per tax year and may
include required minimum distributions (RMDs).
Distribution must be made to a qualifying charity. Private foundations and donor-advised funds are not eligible. American SPCC is a qualifying 501(c)(3) nonprofit charity; Federal Tax Identification 27-4621515.
The IRA Trustee or custodian must make the distribution directly to the charity. Distributions made payable to
the IRA owner and transferred to the charity will not qualify.
IRS - SPECIAL CHARITABLE CONTRIBUTIONS FOR CERTAIN IRA OWNERS
IRS Tax Tip 2009-23
As an alternative method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization. Here are ten things taxpayers who are thinking about making such a donation will need to know:
- The IRA owner must be age 70 ½ or older.
- The donor must directly transfer the money tax-free to an eligible organization.
- The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization.
- This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions.
- Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible.
- To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity.
- Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless non-deductible contributions are transferred.
- Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients. American SPCC is an eligible 501(c)(3) nonprofit charitable organization; Federal Tax Identification 27-4621515.
- Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. If non-deductible contributions are transferred to an eligible organization, a charitable contribution deduction may be allowed if itemizing deductions.
- More information about qualified charitable distributions can be found in Publication 590, Individual Retirement Arrangements.
American SPCC is a 501(c) 3 top-rated nonprofit organization (federal tax ID 27-4621515).
Charitable donations are tax deductible.