Snyder and Associates

 

Tax Byte

Additional IRS Externders: IRA Distributions Directed to Charities

The Tax Increase Prevention Act (TIPA) that passed just before the Christmas holiday extended many tax provisions that had expired at the end of 2013, including one that allowed taxpayers who are aged 70 ½ or older to make qualified charitable distributions from their IRA’s.  This provision allows those taxpayers to direct a withdrawal from their retirement accounts to be paid directly to a qualified charity.  This direct transfer will count towards the taxpayer’s required minimum distribution, but is not included in the taxpayer’s income.  The transfer does not qualify for a charitable deduction as that would give the taxpayer a double benefit, but is also not limited by the charitable deductions rules.

Though this extender applies to a limited number of taxpayers (those older than 70 ½ with IRA funds and an intent to make a charitable donation), it does provide a significant tax planning opportunity, both for income tax planning and potentially for estate planning as well.  A retired taxpayer with limited income, but large IRA balances, could make a significant donation and still receive a tax benefit when the deduction otherwise would have been limited. Also, taxpayers who only withdraw funds from their IRA to meet the required minimum distribution, but who otherwise don’t need the funds for their personal use, can send these funds directly to a charity and avoid paying income tax on the required minimum distribution.  

Not all charities are eligible to receive these qualified charitable distributions; donor advised funds and private foundations do not qualify.  As with most of the provisions of the TIPA, this break is only in effect for direct transfers through December 31, 2014.  After that date this provision expires again and we will wait to see if Congress extends the deduction next year.

The distribution requires special paperwork - please discuss with your investment advisor or IRA custodian.  As always, please give us a call if you have any questions.

We wish you and your family a safe and blessed holiday season.

Linda Sheridan, CPA, CVA

Back to Tax Byte archive