A little-known tax-free transfer allows persons 70 ½ and older to give up to $100,000 from their Individual Retirement Account (IRA) to charity each year. The distribution counts toward your minimum required distribution for the year and it is excluded from your adjusted gross income. Donating to a 501(C)(3) Charity allows you to reduce your taxable income and may reduce the amount you pay for Medicare by reducing your adjusted gross income.
Charitable distributions from an IRA are a win/win opportunity. The taxpayer wins by reducing his or her taxable income and the charity wins in that they get the full value of your IRA donation. If you withdraw the same amount of money from your IRA, you must pay income taxes on the amount withdrawn. If you donate directly to a charity, the charity receives the gift 100% tax free! Even if you take the standard deduction, this method of donating allows you to get a tax reduction because the withdrawal from the IRA is not counted in your income, thus you save income taxes. But do note that for this reason charitable distributions from an IRA are not eligible for a charitable tax deduction, since they already are exempt from income tax.
The tax-free transfer lets you benefit from making a gift to The Arc of Massachusetts, even without itemizing. It is important to have the gift made directly from your IRA. While the gift can be made up to December 31 of each year, it is important to not wait until the last minute to make such a gift. The IRA manager must make the transfer and the charity must cash the check prior to the end of the year. Therefore, it is best to begin processing the gift no later than November 1 in order to be sure the paperwork clears prior to the end of the year.
You should note that the check cut from your IRA must be made payable directly to The Arc by the custodian of your IRA, and not payable to you. Call the financial institution that holds your IRA and ask about its charitable rollover procedures.
If you have an accountant do your tax returns, advise the accountant that you have made a Qualified Charitable Distribution (QCD) in the year. The IRA custodian will issue a 1099 for the full amount of distributions and your accountant must indicate on your tax return that you gave a QCD and then subtract the amount of the QCD from the reported amount of IRA distributions.
It is also recommended that you contact The Arc to let them know you are making a gift. IRA custodians do not always include the name of the person making the gift when they cut the check directly to the charity. If you want confirmation of your gift from The Arc, you should let them know to expect a check from your IRA custodian.
You should consult your tax advisor or attorney to confirm how you would benefit from this opportunity. If you have questions or would like to notify The Arc of Massachusetts that you have made a gift from your IRA, please contact Katrin Aback, Director of Development, at email@example.com.
By Theresa M. Varnet, M.S.W., JD, Fletcher Tilton, P.C.