The Consolidated Appropriations Act of 2016 made permanent the benefits that had been temporarily available when making direct transfer charitable contributions from individual retirement accounts.
The Benefits of a Direct Transfer:
· Direct transfer of IRA distributions to qualifying charitable organizations will not be taxable to the donor. This is not the case if the distributions are first received by the IRA owner before being contributed to the charity.
· Direct transfers will eliminate the potential for marginal tax rates to increase on other income such as social security.
· Direct transfers avoid the potential to trigger adjusted gross income limitations on annual charitable deductions.
· Direct transfers will avoid the potential for causing any reduction in available itemized deductions.
· Direct transfers will avoid the possibility that taxable income distributions will cause Medicare insurance premiums to increase.
· Direct transfer contributions to charities qualify for satisfying required minimum distributions (RMDs) for the year in which the contribution is made.
· Taxpayers who take the standard deduction (instead of itemizing their deductions) will not be precluded from deducting a charitable deduction on their tax return.
The Guidelines:
· Only individuals age 70.5 or older can make contributions. This requires that the actual transfer of gift funds from the IRA must occur on or after the date you reach age 70.5.
· The gift must occur as a direct transfer from your IRA to a charity. Funds that are first distributed to the IRA owner will not qualify for an income tax deduction.
· The charity must be an organization that qualifies for a charitable income tax deduction of an individual, other than a private foundation, donor-advised fund, or other supporting organization under IRS Section 509(a).
· The charity must provide a written acknowledgement to the donor for the specific contribution amount.
· The contribution can be made from any IRA or individual retirement annuity, but not from an inherited IRA, simple retirement account, or simplified employee pension if an employer contribution is made for that year.
· Total annual contributions are limited to a total of $100,000.
· You cannot receive any tangible benefit from the charity in return for your contribution.
How to Do It:
· Contact the charity to get their exact payee name that will be put on the check that is used for the contribution. It will not qualify if it is made out to you.
· Contact your IRA custodian or trustee to request distribution from your IRA in the form of a check that is made payable directly to the charity’s name instead of your own name. This will make sure that the custodian understands that you wish to make a qualified charitable IRA contribution to keep them from making a disqualifying mistake of having the distribution being placed in one of your non-IRA accounts as an intermediate step.
Deliver the check to the charitable organization and make sure you receive a letter of acknowledgement from the charity for the specific amount of your gift.
Greg Tinaglia
Last Updated: 10/09/2016