At the end of the year Congress passed and the President signed HR-637, the Permanent IRA Charitable Contribution Act of 2015, which makes a permanent amendment to the tax code to allow taxpayers older than 70-1/2 to direct a distribution from their IRA directly to a qualified charitable organization, bypassing the usual realization of income on the distribution. A taxpayer can use this method to direct up to $100,000 per calendar year to qualified charities. This needs to be a completed gift and cannot be directed into the taxpayer’s donor-directed fund, charitable gift annuity or charitable remainder trust. The gift won’t qualify for the charitable gifts deduction, but it would be exempt from income tax. Depending on your situation, the income tax savings just might be the incentive you need.
What a fantastic idea. IRA owners who are over age 70-1/2 need to take their required minimum distributions anyway, and every dollar they take out is subject to income tax. The addition of that income to other retirement income such as Social Security, pensions, interest & dividends, etc. can result in adverse changes to taxability of the Social Security benefit, bump you into a different tax bracket, etc. Another way to think about it is that if you’d pay 25% income tax on a $1,000 IRA distribution, redirecting it to a charity means you’re making a $1000 gift that only costs you $750. So if you otherwise have all the income you need for an enjoyable post-70 lifestyle, or maybe your post-90 lifestyle, redirecting part of your IRA distribution to your favorite worthy cause can be a win-win all around. Non profit organizations fill in so many gaps in our nation’s safety net, whether through job training, emergency housing, relocation assistance, literacy programs, or social services to homebound elders or people with disabilities. The need is just never ending. And it feels so good to share what we have with those in need.
There are plenty of ways to build meaningful charitable gifts into your estate plan, sending a wonderful message to your heirs and helping to repair the world, one step at a time.
Call us about estate planning that includes charitable giving …. 732-382-6070