Charitable Gifts from ira's

If you are 70½ years of age or older, you can take tax-free withdrawals from your IRA if the money goes directly to a charity. Charitable gifts made directly from your IRA will count towards your required minimum distribution (RMD) for the year. While your gift cannot be claimed as a tax deduction, IRA withdrawals donated directly to charity are not counted as income so you will not owe income tax on the withdrawal. Below is some in-depth information from the Council on Foundations on this now permanent provision.

What is an IRA charitable rollover? 

A qualified charitable distribution is money that individuals who are 70½ or older may direct from their traditional IRA to eligible charitable organizations. The amount distributed directly to an eligible charity can be excluded from your gross income, meaning you will not be taxed on the distribution. Charitable distributions from individual IRAs are capped at $100,000 each year.

How will charitable distributions impact the required minimum distributions (RMDs) from my IRA? 

Shortly after you reach the age of 70½, you are generally required to receive distributions from your traditional IRA. For the purposes of minimum required distributions, the IRS treats IRA distributions the same, whether you use the distribution for personal purposes or direct the distribution to a charity, meaning charitable distributions can help you meet your minimum required distribution.

May I take a charitable deduction on my Schedule A (1040) when I roll over assets to a charity under this provision? 

No. Because you can exclude this contribution from your gross income, you cannot take a charitable contribution deduction for the contribution. You benefit by not having to recognize as income the amount you contribute directly from your IRA to a qualifying charity.

To which charities can I make qualified charitable distributions?

Most contributions to public charities—other than supporting organizations—are considered qualified charitable contributions. However, distributions from IRA accounts to private foundations and donor-advised funds held by public charities such as community foundations are not considered qualified charitable distributions under this charitable rollover provision.

Will an IRA distribution to a community foundation fund qualify?

Yes, distributions to almost all types of funds typically held by community foundations—such as scholarship, field-of-interest, and designated funds—qualify. The exception to this general statement is that a distribution to a donor-advised fund will not qualify for this special treatment.

Can I contribute IRA assets to a donor-advised fund?

Yes. However, since such distributions do not count as qualified distributions from IRAs under these special rules, you will have to first recognize those distributions as income. You then must calculate their charitable deduction according to the general rules pertaining to percentage limitations and itemized contribution reductions.

Am I limited to one IRA charitable distribution per year, or can I request multiple transfers?

Donors aged 70½ or older are limited to a maximum of $100,000 in any one year as an IRA charitable distribution, however there is no requirement that the entire amount be made in one transfer or that the entire amount go to a single qualified charitable organization. You can request multiple direct transfers from their IRA to qualified charities in a year, but only $100,000 will be excluded from income as an IRA qualified charitable distribution.

What if I want to contribute more than $100,000 to a qualified charity from an IRA?

The law limits the amount that you can exclude from your income to $100,000. If you wish to take funds from your IRA to contribute more than $100,000 to charity, you cannot exclude the additional amount from your gross income. Rather, you must follow the general rules pertaining to percentage limitations and itemized contribution reductions.

Under what circumstances will this special treatment of an IRA charitable rollover most likely benefit donors?

Traditionally, when you receive a distribution from your IRA and make a corresponding charitable contribution, you must count the distribution as income and then receive a charitable deduction, if you itemize, for any amounts you transferred to charity.

For higher income taxpayers: the charitable contribution deduction you receive may not totally offset the taxes you must pay for receiving the distribution from your IRA. In such cases, you would potentially benefit more by using the charitable rollover provision when making a charitable donation.

Other donors who may benefit include:

  • Donors who itemize deductions and whose charitable contributions are reduced by the percentage of income limitation.
  • Individuals who do not usually itemize their deductions.  The Tax Cuts and Jobs Act of 2017 will likely mean fewer taxpayers will be itemizing.
  • Individuals in states where the operation of state income tax law would offer greater benefits as a result of a charitable rollover. (Donors will need to work with their professional advisers to determine the effect of these rules on their specific tax situation.)

How do I make a qualified charitable distribution?

You must instruct your IRA trustee to make the contribution in the form of a check made payable to an eligible charitable organization.

A donor wants to utilize the IRA charitable distribution for the current year’s required minimum distribution. Does the community foundation need to physically receive the check by December 31 or is it sufficient for the check to be put in the mail?

To take advantage of the IRA charitable distribution, the distribution must be sent directly from the IRA company to the charity or to the donor, who records it and forwards it to the charity, depending on the IRA trustee’s procedures.  To receive tax-free treatment, the check must never be made out to the donor.  Generally, the date of mailing would qualify as the date the gift is made. Accordingly, if the IRA company mails the distribution check to the charity by December 31st, it would be counted as an IRA distribution in that calendar year.

May a charity provide any goods or services in return for the contribution?

No. If you (the donor) receive any goods or services (e.g., tickets to a fundraiser) that would have reduced your charitable deduction had you made an outright gift to the charity, the rollover of assets from an IRA will not qualify for the tax-free treatment under this provision.

Can I make a qualified charitable distribution for split interest gifts?

No. Charitable lead trusts and charitable remainder trusts are not eligible to receive qualified charitable distributions. Because you cannot receive a benefit in return for an IRA distribution, any contribution you make in return for a charitable gift annuity would not be eligible for the tax-free treatment.

For more information, talk to your financial adviser or contact us.

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