Recently the Consolidated Appropriations Act reinstated the ability to give to a qualified charity from your traditional IRA. This ability has been reinstated each year but in 2016 has finally been made permanent. This is especially beneficial for people who are over 70.5 years old. When you reach 70.5 years old that is when you have to start taking Required Minimum Distributions from your IRA account. Most people who are age 70.5 are already drawing funds in retirement anyway, so they already meet this requirement. But other people who don’t necessarily need the money are forced to take a certain percentage at this time. The percentage gradually increases as they get older. This is how the IRS makes you pay taxes on all that tax deferred money. 
So…..what does this mean anyway. To put it very simple, it means you can give to any qualified 501c3 directly from your IRA and you bypass paying taxes on that money. Yes, that’s right. You could give to your church or other local nonprofit and actually save money on taxes each year! How would you do that? It’s quite simple, when you take the distribution from the IRA you fill the paperwork as such so that the fund company or brokerage you’re working with make the payment directly to the charity. It cannot go into your hands to get this benefit.
Here is an example….
Let’s say you are above age 70.5 and normally give $500 to a charity you love and also tithe $3000 to a religious institution. Rather than writing them a check as normal instead you have your IRA broker like us cut you a check that’s written directly to each institution. They mail you the check and you deliver it to the charity and religious institution. Normally if you would have taken out $3,500 from your IRA you would pay taxes on that money. Let’s say your taxes were 15{bcc819005c63d8d01720890790576eb1bb8f541a24798f0c593f4caf8c2faac8} federal and 5{bcc819005c63d8d01720890790576eb1bb8f541a24798f0c593f4caf8c2faac8} state. That totals $700 in total taxes that you’d have to pay! By giving it straight to the charity you save that $700! You simply don’t have to pay it. Pretty cool huh?
The benefits are:
- The charitable contribution counts toward the required minimum distribution each year.
- Normally a withdraw from your IRA would count as income which would possibly cause you to pay more taxes on your social security and would count towards raising your medicare premiums. By doing it this way you’re reporting less income and avoiding that!
- You don’t have to worry about the AGI limitations for charitable donations each year.
A few Requirements
There are a few restrictions but most individuals probably won’t have to be concerned. You can’t give to a private (grant-making) foundation. You can’t give to an organization defined as a “supporting organization”. (IRS Section 509a3) And as stated before you have to be 70.5 years old. The charitable organization also has to give you proof of the contribution. These contributions can only come from a traditional IRA. They can’t come from an inherited IRA, a SEP IRA, or SIMPLE IRA. However if you do have a SEP or SIMPLE you could easily transfer it to a traditional IRA and process it from there. You are limited to $100,000 per year in contributions like this. This is per person. So if you have a spouse with a traditional IRA then you could potentially gift up to 200,000 between the two. But only if both of your accounts had at least 100,000 in them.
A few tax considerations of Qualifed Charitable Contributions from your IRA
If your IRA has a basis it’s important to get tax help in figuring the new basis before and after contributions. It’s best to consult a tax professional to ensure all of your charitable contribution will be effectively counted as qualified.
We Can Help
Would you like help with doing something like this for you or a family member? We’d be glad to help! We work with clients locally in middle Tennessee and by phone or video conference across the US. If you’d like a consultation then please fill out our contact form or give us a call and we’ll be glad to help.
