Special Charitable Contributions For Certain IRA Owners
As an alternative method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization. The following is a list of ten things eligible taxpayers who are considering making such a donation will need to know.
The IRA owner must be age 70 ½ or older.
The donor must directly transfer the money tax-free to an eligible charitable organization.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
The maximum amount that an IRA owner may transfer annually tax-free to an eligible organization is $100,000. If donors wish to take funds from their IRA to contribute more than $100,000 to charity, they cannot exclude the additional amount from their gross income. Rather, they must follow the general rules pertaining to percentage limitations and itemized contribution reductions. The provision applies to each individual’s IRAs. In many marriages, both spouses will have IRAs. Therefore, it’s possible that the spouses could team up, each rolling over $100,000 for a $200,000 rollover contribution to a single qualified charity.
Recent legislation made the IRA charitable contribution option permanent and available to eligible IRA owners, regardless of whether they itemize their deductions. With the Protecting Americans from Tax Hikes (PATH) Act of 2015, the qualified charitable distribution (“QCD”) rules have finally been made permanent, making it easier to engage in proactive charitable giving strategies that help to minimize the tax bite of an IRA’s Required Minimum Distribution (RMD) obligations.
Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity.
Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless non-deductible contributions are transferred.
Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. If non-deductible contributions are transferred to an eligible organization, a charitable contribution deduction may be allowed if itemizing deductions.
Individuals making a charitable contribution using IRA funds must obtain a contemporaneous written acknowledgement of the contribution to benefit from this new provision. See IRS Publication 1771, Charitable Contributions—Substantiation and Disclosure Requirements contains information about substantiation of charitable contributions.
Additional information about qualified charitable distributions can be found in IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).