A Time for Tax-Smart Gift Giving: Qualified Charitable Distributions from IRAs

There’s no time like the present to give to your favorite charitable organizations. Really. Seasonal generosity aside, the provision in the current tax laws that allows for gifts from Individual Retirement Accounts expires at the end of 2013.

The American Taxpayer Relief Act of 2012 permits individuals ages 70 ½ or older to distribute up to $100,000 tax-free from their IRAs to certain charitable organizations (50 percent organizations).

This can be a great win-win way to gift, especially for higher-income taxpayers.

If you are planning to make a charitable contribution before the end of the year and need to satisfy the minimum distribution requirements, this provision is certainly something to consider.

No charitable deduction is claimed for the donation, but the gifts are not considered income that would inflate your adjusted gross income (something that could lead to a loss of key deductions and exemptions). Rather than reporting a distribution and a subsequent contribution, the transaction is not included on your tax return. Also, because the distribution is not included in gross income, this provision might help you avoid some of the phase-out thresholds for personal exemptions, itemized deductions, etc.

A few things to keep in mind:

We’re talking IRAs here, not 401(k) plans. And you have to meet the age requirements.

The distribution must be made directly to the “qualified” charitable organization. You cannot receive the distribution and subsequently donate it to the charitable organization.

Finally, if you want to take advantage of this IRA giving provision, you must do it soon. Don’t procrastinate! The law allowing for these transfers is scheduled to expire at the end of this year. At this point, it is uncertain whether or not this opportunity will exist in 2014.