Tax Free IRA Charitable Rollover Permanently Extended

If you are age seventy and a half or older, you may instruct your IRA custodian to transfer any amount, up to $100,000, directly to a charitable institution of your choice that qualifies under Section 501(c)(3) (not including a private foundation nor a Charitable Remainder or Charitable Lead Trust).  This distribution would not be included in your taxable income (but could fulfill required minimum distributions) and would also not produce an income tax deduction.  If you thus have not received your IRA distribution, it is not taxable.

This outright gift must come directly from your IRA custodian to the charitable organization.  Gifts may be made at any time in 2016 and in future years, barring reconsideration by Congress.

The power of this donation is that the income does not appear in your income tax return and therefore is not subject to state income taxes, and for individuals at higher levels, is not subject to the Affordable Health Care Act Tax – 3.8%.  If you’re making charitable gifts this is the way to go.  The problem is that ordering checks for smaller gifts is time consuming.  Another solution is to establish a Donor Advised fund within one of the local community organizations that support them, and make one check to the fund and have them make the distributions to other charities.  They will charge 1% of the value of your account and possibly a per item distribution fee.

In conclusion, it’s not without its mechanical complications, but provides a very significant income tax savings and is not subject to the charitable rollback that occurs for your charitable deductions otherwise.  Also, if you make a large contribution it is worth considering.

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  • About the Author

    John W. Eilers

    Of counsel, John Eilers has focused his practice of law on estate planning, estate and trust administration (including probate litigation) and non-profit law.  He has been recognized by the Ohio State Bar Association as a specialist in the practice of estate planning, trust and probate law.

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