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BEACON Senior News - Western Colorado

Does making a charitable contribution from your IRA make sense for you?

Dec 05, 2016 10:59AM ● By Kim Last

If you are considering making a charitable contribution from your IRA, there’s good news for taxpayers that are at least 70-1/2 years young. Congress voted to make permanent the exclusion from income up to $100,000 per person, per year, for IRA distributions that are given directly to charities.

Now that you are able to plan for charitable contributions from IRAs, let’s consider whether it makes sense for you.

Benefits of IRA charitable contributions

• A key benefit of the direct charitable contribution from your traditional IRA is that the distribution counts toward your required minimum distribution (RMD).

• IRS rules mandate that individuals age 70-1/2 and older take RMDs from their IRA each year, regardless of whether the income is needed. These annual withdrawals are subject to ordinary income taxes. By making a charitable contribution from your IRA, you can satisfy your RMD amount without reporting additional income.

• Generally, in order to claim a charitable deduction, you must itemize your tax return. For retirees who no longer pay mortgage interest, the deductions may be too small to itemize. The provision offers tax benefits of a charitable contribution without having to itemize your deductions.

• Charitable deductions are limited by a taxpayer’s income—generally up to 50 percent of modified adjusted gross income. By directing your IRA distribution to a charity, this restriction can be avoided.

• If reporting additional income on your Form 1040 increases your Medicare Part B premiums or negatively affects the taxability of your Social Security benefits, then making a charitable contribution from your IRA may be appropriate.

• You can contribute more than your RMD to charity as long as you do not exceed $100,000 in a calendar year. However, you may not receive anything tangible in exchange for your contribution.

• The contribution cannot go to a donor-advised fund, supporting organization or private foundation.

It’s important to consider your tax situation before deciding whether to make a charitable contribution from your IRA. Be sure to work closely with your financial representative and your tax professional to determine whether donating directly to a charity from your traditional IRA is right for you.

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