February 28, 2013

What You Need To Know About Charitable Donations/Distributions

Direct IRA to Charity Donations

As part of The American Taxpayer Relief Act of 2012, charitably inclined IRA owners can make qualifying charitable distributions (up to $100,000) directly from their IRA’s in 2013. The amount withdrawn from the IRA is excluded from income; however the taxpayer is not allowed a charitable deduction.

Important Aspects of the Qualified Charitable Distribution

  • A qualifying taxpayer is a traditional IRA owner age 70½ or older
  • Distributions  up to $100,000 in the aggregate qualify
  • May be used to meet Required Minimum Distribution(RMD)
  • Payment must be made directly from IRA to Charity
  • Distribution CANNOT be made to Private Foundations, Donor Advised Funds, or Charitable Remainder Trusts
  • Will expire on 12/31/13 unless extended

Possible Benefits of the Qualified Charitable Distribution 

cashThe amount of the Qualified Charitable Distribution will be excluded from a taxpayer’s gross income for 2013 which will reduce the taxpayer’s Adjusted Gross Income (AGI).  A taxpayer’s AGI plays a critical role in determining different tax consequences.  Possible benefits of reduced AGI include:

  • Possible reduction in the Medicare Surtax
  • Increased itemized deductions that would be lost due to AGI limitations
  • Increased personal exemption credits that would be lost due to AGI limitations
  • Decreased taxability of Social Security Benefits

The Qualified Charitable Distribution may be a valuable addition to your comprehensive tax reduction strategy for 2013. We welcome the opportunity to review this plan as part of your overall financial strategy.