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Give IRA Cash To Charity: Heads You Win, Tails You Win

A tax break for charitable-minded retirees recently was wiped off the books. But so what? You still can take advantage of this situation. It’s a win-win proposition: If the tax break is reinstated, you avoid tax. And if it’s not, you’re generally no worse off than before.

Previously, anyone who was age 70½ or older could transfer up to $100,000 from an IRA to a qualified charitable organization without paying tax on the distribution. The maximum exclusion was doubled to $200,000 for married couples. Downside: The gift wasn’t tax-deductible.

This tax law provision, which expired on January 1, 2012, might be renewed retroactively. If it is, any gift you make this year is exempt from taxation. But even if Congress doesn’t revive the exclusion, you still can create a “tax wash” by deducting the amount of your gift as a charitable donation (although other limits might apply). What’s more, in that case you can give—and deduct—more than the $100,000/$200,000 limit.

Either way, the transfer counts as a required minimum distribution (RMD). After you turn age 70½, you must take annual RMDs from your IRA. So you can fulfill this obligation while helping your favorite charity.

Is there any way you can lose? There is one: If you don’t itemize deductions, you get no tax benefit from your gift. This strategy is strictly for itemizers.


This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.



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