Using Your IRA to Make Charitable Gifts

By on April 17, 2013

Have you ever considered donating to your favorite charities through a distribution from yourIndividual Retirement Account?

It’s not only possible, but it can represent an attractive opportunity after you’ve reached age 70 ½. That’s the age when you must start taking required minimum distributions from your IRA. Roth IRAs are exempt from these mandatory distributions.

Plenty of affluent investors aren’t thrilled with the prospects of tapping into their retirement accounts once they’ve reached their seventh decade. And there’s a very good reason for that – distributions from an IRA can trigger significant income taxes.

On any money withdrawn from an IRA, the account owner is taxed at his or her ordinary income tax rate, which can be as high as 39.6% for federal tax purposes. The distributions, if they are large enough, can bump the investor into a higher tax bracket and also trigger other undesirable tax consequences, such as phase-outs of itemized deductions.

This issue leads us back to a gift-giving strategy that can allow you to avoid paying income taxes on your distributions.

A Charitable Transfer or Rollover

In 2013, an individual can donate up to $100,000 directly from his or her retirement account to a charity without paying taxes on the distribution. Because these charitable distributions are tax free, the donor can’t deduct the gift on his or her tax return.

This option, which first became available in 2006, is sometimes known as a charitable transfer or rollover.  The provision expires at the end of 2013 unless Congress extends it.

What if you’d rather donate assets from your taxable accounts? In our next post, you’ll learn why this can be an excellent way to help a charity and yourself.


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