Charitable IRA Rollover: Reduce Your Income Tax and Support Paul’s Place

April 1st, 2016

Do you pay federal income tax on unneeded, but required distributions from your traditional IRA? The charitable IRA rollover* – made permanent in December 2015 – may be for you.

The charitable IRA rollover is a great option if you do not need the additional income the government is requiring you to take, even if you do not itemize deductions. Here’s how it works: once you reach 70 ½ years, you can make gifts of up to $100,000 per year to qualified charitable organizations, like Paul’s Place, directly from your IRA. These gifts count towards the required minimum distributions you must take annually from your traditional IRAs, but are not included in your adjusted gross income.

Example

Suppose John wants to make a contribution to Paul’s Place. He has $500,000 in his IRA, and his required distribution is $25,000. He can authorize the administrator of his IRA to transfer $20,000 directly to Paul’s Place and $5,000 to himself. The $20,000 distributed to Paul’s Place will not be subject to federal tax and will be counted toward his annual minimum required distribution.

Considerations

  • Retirement assets in 401(k), 403(b), SEP, or SIMPLE plans do not qualify, but may be rolled into a new or existing IRA and transferred to a non-profit organization.
  • Using a Roth IRA eliminates many of the tax advantages of the charitable distributions. If you do not have a traditional IRA, it may be better to withdraw funds directly from your Roth IRA, make a gift, and take the charitable deduction. Consult your financial or tax advisor first.
  • Distributions can only be made to 501(c)(3) tax exempt organizations and cannot be made to donor advised funds, private foundations, or supporting organizations.
  • You can only make outright gifts. Distributions may not be used to fund life-income gifts such as charitable gift annuities, charitable remainder trusts, or pooled income funds.
  • Do not withdraw funds yourself and contribute them to Paul’s Place. You must instruct your IRA administrator to make the contribution directly to an eligible charitable organization. We offer a sample letter you can send to your plan provider to initiative a rollover.
  • Since the gifts are not counted in your income, you cannot claim an itemized charitable deduction for them.
  • Each state has different laws, so you will need to consult with your own advisors on how the charitable IRA rollover will affect your state tax liability.

Since the charitable IRA rollover was first made available in tax year 2006, many individuals aged 70 ½ or older have used this popular option to support their favorite non-profit organizations, like Paul’s Place, with tax-wise gifts of all sizes.

Whether or not you choose to make a charitable IRA rollover gift, you can still designate Paul’s Place as a beneficiary to receive IRA assets after your lifetime. The charitable IRA rollover is a good option for donors who would like to see their philanthropy at work now.

* A charitable IRA rollover, or other significant gift, to an organization such as Paul’s Place should always be made in consultation with a qualified estate planning attorney, a certified tax specialist, and your family.