By: Laurie Valentine
The Protecting Americans from Tax Hikes Act enacted in December 2015 (the “Act) includes a permanent extension of the Charitable IRA Rollover provisions first enacted in 2006. Those provisions allow certain Individual Retirement Account (“IRA”) owners to use taxable IRA funds to make charitable gifts without negative tax consequences.
Generally, distributions from an IRA, whether to the IRA owner or another person or organization, must be included as part of the IRA owner’s taxable income.
The Charitable IRA Rollover provisions permit a person who is 70 ½ or older to make tax-free gifts in any amount up to a total of $100,000 per year from a traditional or Roth IRA directly to qualified charities (“qualified charitable distributions”). Distributions from 401(k), 403(b) or other types of retirement accounts are not eligible.
The IRA owner is not entitled to a charitable income tax deduction for the qualified charitable distributions, but such distributions are not included in the IRA owner’s income.
IRA distributions that are not made directly to the charity don’t qualify.
Your church and our KBC and SBC agencies and institutions are “qualified charitable organizations”. Private foundations and donor advised funds are not.
While qualified charitable IRA distributions are not included in the giver’s income for income tax purposes, they are treated as part of the giver’s required minimum distributions. Therefore, those 70 ½ and older who must take required minimum distributions from an IRA and plan to make contributions to charity should strongly consider taking advantage of the ability to use their IRA as the funding source for making those charitable gifts.
The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.