This is the original blog post copy that ran on Friday, December 26, 2014. It was updated on Monday, March 27, 2017.
Christmas Day has passed, but it’s still the time for giving, both from purely philanthropic and tax perspectives.
Just before wrapping up its lame duck session this month, Congress gave some older folks with certain retirement plans a way, again, to share their savings. Lawmakers finally approved for the 2014 tax year direct rollovers from individual retirement arrangements (accounts, or IRAs, to most of us) to qualified charities.
This option was one of the more than 50 tax provisions that were renewed retroactively for this year as part of the extenders package.
IRA owners age 70½ or older now have until next Wednesday, Dec. 31, to make a direct transfer of up to $100,000 to an eligible charity.
Are you comfortable enough in your golden years to share some of your IRA money with your favorite charity? That option is back for the 2014 tax year.
And if you had gambled that the House and Senate would OK this tax move and earlier in the year had an eligible IRA distribution transferred to a qualified charity, your bet has paid off. Send me your number so I call you the next time I’m in Vegas!
Long-standing renewal: This option, first available in 2006, can be used for distributions from any IRA, but it’s particularly welcome by account owners who must take required minimum distributions, or RMDs, from their traditional IRAs.
This option allows them to meet their mandated annual withdrawal amount, but because the money goes directly to a charity, they don’t face any taxes on the distributions.
Even better, you don’t have to worry if you’ve made both deductible and nondeductible contributions to your traditional IRAs. A special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
The one downside for seniors who itemize is that they don’t get to claim a deduction for the transferred charitable gift. However, avoiding a chunk of taxable income is a pretty darn good tax break.
Some limitations: Note, however, that there are limitations.
The most obvious one is the age requirement. I you’re not yet a septuagenarian (and a half), you can’t take advantage of the IRA-to-charity transfer.
Also, the option doesn’t apply to all retirement accounts. Distributions from employer-sponsored retirement plans, including SIMPLE IRA plans and simplified employee pension (SEP) plans, are not eligible.
And not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Finally, make sure that the distribution donation is transferred directly by the IRA trustee to the eligible charity. If you take the RMD, you’ll still owe taxes on the amount, even if you subsequently give it all to your favorite IRS-approved nonprofit.
Now all philanthropic older folks with traditional IRAs have to worry about is getting this tax break renewed for the 2015 tax year and beyond.
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