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Tuesday Tax Tidbit: Should You Make a "Charitable IRA Rollover" in 2016? | Weaver | Assurance - Tax - Advisory
Tuesday Tax Tidbit: Should You Make a "Charitable IRA Rollover" in 2016? | Weaver | Assurance - Tax - Advisory: Should You Make a "Charitable IRA Rollover" in 2016?
Last year a break valued by many charitably inclined retirees was
made permanent: the charitable IRA rollover. If you’re age 70½ or older,
you can make direct contributions — up to $100,000 annually — from your
IRA to qualified charitable organizations without owing any income tax
on the distributions.
Satisfy your RMD
A charitable IRA rollover can be used to satisfy required minimum
distributions (RMDs). You must begin to take annual RMDs from your
traditional IRAs in the year in which you reach age 70½. If you don’t
comply, you can owe a penalty equal to 50% of the amount you should have
withdrawn but didn’t. (An RMD deferral is allowed for the initial year,
but you’ll have to take two RMDs the next year.)
So if you don’t need the RMD for your living expenses, a charitable
IRA rollover can be a great way to comply with the RMD requirement
without triggering the tax liability that would occur if the RMD were
paid out to you.
Additional benefits
You might be able to achieve a similar tax result from taking the RMD
payout and then contributing that amount to charity. But it’s more
complex because you must report the RMD as income and then take an
itemized deduction for the donation. This has two more possible
downsides:
Have questions about charitable IRA rollovers or other giving strategies? Please contact us. We can help you create a giving plan that will meet your charitable goals and maximize your tax savings.
Last year a break valued by many charitably inclined retirees was
made permanent: the charitable IRA rollover. If you’re age 70½ or older,
you can make direct contributions — up to $100,000 annually — from your
IRA to qualified charitable organizations without owing any income tax
on the distributions.
Satisfy your RMD
A charitable IRA rollover can be used to satisfy required minimum
distributions (RMDs). You must begin to take annual RMDs from your
traditional IRAs in the year in which you reach age 70½. If you don’t
comply, you can owe a penalty equal to 50% of the amount you should have
withdrawn but didn’t. (An RMD deferral is allowed for the initial year,
but you’ll have to take two RMDs the next year.)
So if you don’t need the RMD for your living expenses, a charitable
IRA rollover can be a great way to comply with the RMD requirement
without triggering the tax liability that would occur if the RMD were
paid out to you.
Additional benefits
You might be able to achieve a similar tax result from taking the RMD
payout and then contributing that amount to charity. But it’s more
complex because you must report the RMD as income and then take an
itemized deduction for the donation. This has two more possible
downsides:
- The reported RMD income might increase your income to the point that
you’re pushed into a higher tax bracket, certain additional taxes are
triggered and/or the benefits of certain tax breaks are reduced or
eliminated. It could even cause Social Security payments to become
taxable or increase income-based Medicare premiums and prescription drug
charges. - If your donation would equal a large portion of your income for the
year, your deduction might be reduced due to the percentage-of-income
limit. You generally can’t deduct cash donations that exceed 50% of your
adjusted gross income for the year. (Lower limits apply to donations of
long-term appreciated securities or made to private foundations.) You
can carry forward the excess up to five years, but if you make large
donations every year, that won’t help you.
Have questions about charitable IRA rollovers or other giving strategies? Please contact us. We can help you create a giving plan that will meet your charitable goals and maximize your tax savings.
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