For 2013, if you are age 70½ and older, you are allowed to make direct distributions (up to $100,000) from your Traditional or Roth IRA account to a charity. The distribution is tax free, but there is no charitable deduction, and the distribution can count toward your required minimum distribution (RMD). This provision can be very beneficial for a taxpayer who is inclined to make substantial charitable contributions for the year and:
- Receives Social Security (SS) benefits, and the taxpayer’s required minimum distribution for the year causes an increase in the tax on the SS benefits; or
- Is unable or is marginally able to itemize deductions for the year.
Example: A 75-year-old married taxpayer’s adjusted gross income (AGI) before taking his RMD is $28,000. His RMD for the year is $10,000, and he wishes to contribute $8,000 to the building fund for his house of worship. If he takes his RMD and then contributes the $8,000 to the building fund, his AGI will be $38,000; it will be more, if his income includes SS benefits. On the other hand, if he makes a direct transfer of the $8,000 to his house of worship, his AGI would only be $30,000; some or all of his SS benefits would be tax free, depending how much he receives in SS benefits.
Arranging a direct transfer may require some extra time, so if you want to donate some of your IRA to a charity, don’t wait until the last minute to make arrangements with your IRA trustee to do so.
The higher a taxpayer’s income tax bracket, the greater the tax benefits when making a direct IRA-to-charity distribution. If you have questions related to the tax benefits derived from this strategy, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
