Guest post by Lena Rizkallah (learn more about Lena at the end of this post)
As you make your final charitable donations during the last two weeks of 2010, keep in mind that the new tax bill recently passed in Congress extends a provision that allows certain IRA holders to contribute their Required Minimum Distributions (RMDs) to charity. For those people who don’t need their RMDs for income, this might be a great way to keep income brackets low and make a gift to your favorite charity at the same time.
This rule has been in effect in past years and has been resurrected for 2010 and 2011. It allows an IRA holder who is 70 1/2 (and therefore must start withdrawing RMDs from his IRA) to contribute up to $100,000 in IRA assets to a charitable organization without paying taxes on the distribution. The transfer must be made directly from the IRA sponsor to the charity, and the organization will send a letter to the donor to confirm the gift.
In addition, the donor doesn’t get a deduction for the gift made to charity as he would with other gifts. Instead, the RMD goes directly from the IRA to the charity and the donor never has to report the RMD as income. This could be beneficial since reporting the gift might raise the donor’s income to a higher bracket and/or change tax liability on Social Security benefits. Also, since the bill was passed so late in the year, taxpayers can make a RMD gift made through January 2011 attributable to the 2010 tax year.
This is an ideal solution for people with high income and large IRA assets who want to draw down on their IRA without affecting their tax liability.
About the author
Lena Rizkallah of Mosaic Consulting is an attorney who focuses on legislative developments, tax and fiscal policy, and advanced strategies for investment and retirement planning and products. She also writes and presents on trusts, estate planning and charitable giving arrangements.