Most people don’t seem to know it, but in 2015, Congress enacted a permanent extension of what is known as the “IRA Charitable Rollover.” As a result, individuals age 70½ and older can make gifts from their traditional Individual Retirement Accounts directly to charity, satisfying their Required Minimum Distributions and reducing their tax liability at the same time.
How does it work?
If you are 70½ or older, federal law requires you to withdraw a portion of your traditional IRA each year – known as your Required Minimum Distribution or RMD – whether you need the funds or not. The older you are, the more you are required to withdraw. You are required to pay income tax on the portion you withdraw, and if you fail to withdraw your RMD, you will face stiff penalties. For most people, withdrawals from an IRA mean more taxes. And for some people, an IRA withdrawal can even push them into a higher tax bracket.
The IRA Charitable Rollover allows you to redirect any amount (up to a total of $100,000 a year) directly from your IRA to your favorite charitable organizations. The amount you transfer to charity counts against your RMD. Because the transfer goes directly to charity, it is not reported as taxable income to you. The benefits of an IRA Charitable Rollover can apply to you, even if the amount of the transfer exceeds your usual 50 percent limit on charitable deductions. And the benefits apply even if you do not itemize your deductions.
Key points to keep in mind
There are some key points to keep in mind if you are considering an IRA Charitable Rollover:
• Funds withdrawn from your IRA must go directly to charity. If you withdraw the funds personally and then pass the same amount along to charity, it won’t qualify for the IRA Charitable Rollover.
• Married couples that each have their own traditional IRAs can each make an IRA Charitable Rollover, potentially doubling their annual benefit.
• Many donors enjoy using the IRA Charitable Rollover as a way to build up a permanent endowment fund at the Jewish Community Foundation. A JCF endowment fund can support nearly any charitable organizations you like – so you can enjoy seeing your legacy giving at work during your lifetime.
•This can also be an attractive way to satisfy capital campaign commitments or other larger multi-year pledges in a shorter time frame.
• Because your IRA Charitable Rollover is not reported as income to you, you won’t receive an additional charitable deduction for your gift.
• An IRA Charitable Rollover can be done any time of year, but it has to be complete by Dec. 31 to receive the benefit this year. Contact your IRA administrator as soon as possible, to ensure your paperwork is completed and your gift is processed on time.
The information provided here is not intended as tax, legal or financial advice. Contact your personal financial advisers for information specific to your situation.
Richard Kasper is the president and chief executive officer of the Jewish Community Foundation of Greater Phoenix, which owns the company that publishes Jewish News. Visit jcfphoenix.org or call 480-699-1717 to learn more about the IRA Charitable Rollover and other year-end giving strategies.