Question: While perhaps a more appropriate question the week before the end of the year as opposed to the week after, I wanted to know if I able still able to withdraw funds from my IRA to make a charitable contribution? Answer: Whether you are able to do so depends on a few things, but for folks who meet the requirements, there is a special rule for qualified charitable distributions which has been made permanent by the most recent Tax Act. While normally, IRA distributions are included in the gross income of the donor, who then may claim a charitable income tax deduction if the money is donated to charity, the special exception provides that a taxable IRA distribution (to charity) will be excluded from gross income if it meets the definition of a ‘qualified charitable distribution’:
- Up to (a maximum of) $100,000 may be excluded, to the extent otherwise includible in gross income;
- The distribution must be made directly from the IRA trustee to a publicly supported charity; and
- Distribution must be made after the donor attains age 70-1/2.
Comment: The ability for high income taxpayers to utilize the charitable IRA ‘rollover’ provision can be a powerful tool. For example, Paul has adjusted gross income or AGI of $50,000 and wishes to make a $100,000 contribution to charity. If Paul simply uses his IRA funds to make a contribution to charity, the $100,000 withdrawal from his plan would increase his taxable income by $100,000. But the contribution would only be allowed as a deduction (generally) up to 50% of his adjusted gross income (“AGI”). Contrast this with the special IRA rollover provision which allows the full distribution from the IRA and over to charity without increasing Paul’s AGI. For individuals who plan to make charitable contributions and otherwise meet the requirements, this unique provision is a great way to make tax efficient contributions to charity.
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates. You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.
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