Give & receive a tax break. Schools, hospitals and other non-profit organizations are welcoming the return of the charitable IRA rollover – an opportunity that lets a traditional IRA owner aged 70½ or older donate up to $100,000 to charity with a tax perk attached.
This donation can accomplish two very significant things: the IRA owner can subtract the gifted amount from his or her adjusted gross income, and the donation can also count toward the IRA owner’s Required Minimum Distribution (RMD) for that year. So even though an IRA owner can’t claim a tax deduction through this move, it can play a big role in an estate planning strategy.
Request an asset transfer; refrain from a withdrawal. Turn to a financial or tax professional you know and trust for assistance with this, because it involves some logistics.
If you just withdraw money from your IRA and give it to a school or a charity, it is not an IRA charitable rollover. Any money that you withdraw in this fashion will be taxed as regular income.
To arrange an IRA charitable rollover, you must ask your IRA custodian to send the amount of the donation directly to a charity or qualified non-profit organization. In financial parlance, this is known as a trustee-to-trustee transfer. This requires a bit of paperwork, but the potential benefits of an IRA charitable rollover far outweigh the minutes spent.
IRA charitable rollovers cannot be made to donor advised funds, private non-operating foundations or supporting organizations. IRC Section 509(a)(3) defines a supporting organization as a charitythat will “carry out [its] exempt purposes by supporting other exempt organizations”; examples include university endowment funds and non-profits providing essential services for hospital systems.
You may still be able to make a charitable IRA rollover for 2012. When Congress reinstated this provision as a byproduct of the fiscal cliff deal, it also made it possible for a few IRA owners aged 70½ or older to make this move and have it count as part (or even all) of their 2012 RMD. This is only possible if a) you delayed taking your 2012 traditional IRA distribution until December and b) you donate cash to charity between now and January 31, 2013.
Eligible IRA owners can even reclassify cash amounts they gave to charities in December as IRA donations, providing the donations were made after the IRA owner took his or her RMD for 2012. Again, be sure to see a qualified tax or professional about this if you are interested.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.