The new tax relief act signed by President Obama in December (Tax Relief, Umemployment Insurance Reauthorization, and Job Creation Act of 2010) restores a provision that expired in 2009 which allows donors who are at least 70 ½ years old to make a tax free gift to charities from their IRAs. Before this provision was restored, money transferred from a traditional IRA to a charity would be included in the donor’s taxable income for the year. Here is how it works:
1. You must be at least 70 1/2 years old.
2. Your gifts must be made outright from a traditional IRA or a Roth IRA.
3. The amount rolled over from your IRA will be excluded from your gross income.
4. You may distribute any amount up to $100,000 per year per donor. Therefore a husband and wife could each make donations of up to $100,000, so that a couple together could donate a maximum of $200,000.
5. The transfer must go to qualified charities.
6. Your IRA rollover will count toward your minimum distribution requirement.
7. There is no federal income tax deduction for the IRA rollover gift.
One of the advantages is that donors who want to benefit a charity can do this without having to liquidate an asset and without having to recognize the income. The new tax-free rollover option may be especially appealing to:
1. Donors who do not itemize their deductions.
2. Donors required to take minimum withdrawls from their IRAs but don’t need the income.
3. Donors already giving their %0% deduction limit.
4. Donors for whom additional income will cause more of their Social Security to be taxed.
There are many ways to become involved in charitable giving. The estate planning lawyers at Scott C. Soady, A Professional Corporation can explain the various types of charitable trusts that you may want to consider. You can also give gifts to charities as part of your own revocable living trust.