Charitable Giving and the IRA Charitable Rollover

The IRA Charitable Rollover is an important planning tool for individuals in retirement with traditional IRAs

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On Good Friday, Christians celebrate the greatest gift ever given to mankind—Jesus Christ laid down his life to pay the price for a sinful world. Many churches will hold Good Friday services today to commemorate the anniversary of Christ’s crucifixion.

Charitable giving should be something we do out of our desire to help others. However, it is always prudent to make our gifts as tax efficient as possible. For many taxpayers, the ultimate in tax efficiency is being able to give directly from their IRA.

The IRA Charitable Rollover was first enacted in 2006 and then extended through the end of 2011 in the Tax Relief Act of 2010. This provision allows individuals age 70 ½ and older to donate up to $100,000 from their IRA accounts to public charities without having to count the distribution as taxable income. The gift must be completed by December 31, 2011 and can only be made from traditional IRAs. Gifts from 403(b) plans, 401(k) plans, pensions, and other retirement plans do not qualify. The amount of the gift cannot exceed $100,000 or the excess amount will be added to taxable income. Both spouses could gift $100,000 each on a joint tax return providing they both meet the requirements.

This is an important provision for taxpayers who don’t itemize deductions. It also helps those that give large amounts to charities. Charitable gifts are limited to between 30% and 50% of adjusted gross income depending on the type of property gifted. Excess gifts can be carried forward to future tax years but only for five years. After five years the deduction expires. The provision can also help reduce or eliminate taxation of Social Security benefits by excluding the income generated by taking the required minimum distribution from an IRA.

The IRA Charitable Rollover is an important planning tool for those age 70 ½ or older. This may be the last year it is available. Make sure you take advantage of this provision if you qualify.

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