Charitable IRA Rollover

December 6, 2018

The Indianapolis Propylaeum depends on charitable contributions for core support of our mission, including programming and building preservation. 

 

An easy way to make a gift to the Propylaeum is through a donation directly to the Propylaeum through a charitable IRA rollover.

 

If you’re age 70½ or older, you can make direct contributions — up to $100,000 annually — from your IRA to qualified charitable organizations without owing any income tax on the distributions. This break may be especially beneficial now because of Tax Cuts and Jobs Act (TCJA) changes that affect who can benefit from the itemized deduction for charitable donations. A charitable IRA rollover can be used to satisfy required minimum distributions (RMDs). You must begin to take annual RMDs from your traditional IRAs in the year you reach age 70½.

 

If you are in a position where you don’t need the required minimum distributions for your living expenses, a charitable IRA rollover can be a great way to comply with the RMD requirement without triggering the tax liability that would occur if the RMD were paid to you.

 

You might be able to achieve a similar tax result from taking the RMD and then contributing that amount to charity. It’s more complex because you must report the RMD as income and then take an itemized deduction for the donation.

With the TCJA’s near doubling of the standard deduction, fewer people will benefit from itemizing. Itemizing saves tax only when itemized deductions exceed the standard deduction. For 2018, the standard deduction is $12,000 for singles, $18,000 for heads of households, and $24,000 for married couples filing jointly.

Even if you have enough other itemized deductions to exceed your standard deduction, taking your RMD and contributing that amount to charity has two more possible downsides.

 

First, the reported RMD income might increase your income to the point that you’re pushed into a higher tax bracket, certain additional taxes are triggered and/or the benefits of certain tax breaks are reduced or eliminated. It could even cause Social Security payments to become taxable or increase income-based Medicare premiums and prescription drug charges.

 

Second, if your donation would equal a large portion of your income for the year, your deduction might be reduced due to the percentage-of-income limit. You generally can’t deduct cash donations that exceed 60% of your adjusted gross income for the year. (The TCJA raised this limit from 50%, but if the cash donation is to a private nonoperating foundation, the limit is only 30%.) You can carry forward the excess up to five years, but if you make large donations every year, that won’t help you.  A charitable IRA rollover avoids many potential negative tax consequences.

 

Talk with your tax professional for more information on how  you can make a gift  directly to the Propylaeum through a charitable IRA rollover.

 

National Assn. of Charitable Gift Planners

 

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