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Who Could Benefit From an IRA Charitable Rollover?

Posted by Michael D. Machen, CPA, CVA on Dec 21, 2017 11:18:46 AM


iStock-813786668-431476-edited.jpgConsider contributing your "Required Minimum Distribution" (RMD) to a charity. It’s called the charitable IRA rollover. It’s a tax planning strategy for donors giving anywhere from $100 to $100,000 that was made a permanent part of the tax law in 2016. Now, with the big changes in the tax cuts bill, it makes this strategy even more relevant as millions of Americans will take the increased standard deduction and lose the incentive to itemize their taxes, including charitable deductions. 

Here’s how it works. Once you turn 70 ½, you must start taking “required minimum distributions” out of your traditional Individual Retirement Accounts. Normally, these distributions count as taxable income to you. However, you can elect to make gifts directly from your IRA to any public charity. These “charitable rollovers” count as part of your required minimum distribution, but aren’t taxable income to you. That’s a big benefit, particularly if, like most seniors, you don’t itemize deductions on your individual tax returns.

If you don’t itemize deductions, the rollover is a clear tax win. Even if you do itemize, it can save you more tax than taking the IRA distribution into income and then donating it. By lowering your AGI, the charitable rollover may keep other income from being subject to the 3.8% net investment income tax, for example. Other possible advantages of a lower AGI include possible reduction of taxable social security and increase the deductible portion of medical expense itemized deduction.

Warning:  The check from your IRA must be made out to a charity---not to you. Call the financial institution that holds your IRA and inquire about its charitable rollover procedures. If you have check-writing privileges on your IRA, you can write a check off the account directly to the charity. Or you might have to fill out a simple distribution form, naming the charity recipient and specifying the dollar amount.

For more information about the above article or other individual tax saving strategies, contact Michael D. Machen, CPA, CVA at (334) 887-7022 or by leaving us a message below. 

Topics: Individual Tax

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