Last Year for Tax-Free Charitable Donations from IRAs

October 25th, 2011

If you are 70.5 years of age or older and are considering making a donation to a charity, you may wish to consider the option of making the contribution from your IRA account.

For 2011, you can donate up to $100,000 to your favorite charity, provided it is an eligible charitable organization, tax free from your traditional IRA, Roth IRA, or a SEP or SIMPLE IRA. To be considered valid, the distribution from the IRA to the charity must be made directly. It cannot pass through your hands or other accounts. Note: These distributions are not permitted from ongoing SEP or Simple Plans, i.e. plans to which a contribution has been made for the year.

Here are the pertinent facts related to making a donation using this provision of the law:

  • The distribution is not taxable and does not add to your income for the year. The advantage is that your income remains low and helps to minimize taxable Social Security income and tax disadvantages associated with higher income.
  • There is no charitable donation, as the distribution was tax free. However, this can be a considerable benefit to taxpayers who take the standard deduction and do not itemize anyway.
  • If you have not already taken your required minimum distribution (RMD) for the year, the charitable distribution can count toward this year’s RMD. Without Congressional action, 2011 will be the last year in which this option will be available.

Please give us a call for additional information related to this tax provision and how it might help your tax picture for 2011.

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