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  • Writer's pictureSteve Jones

Tax Free Qualified Charitable Distributions from Your IRA

To Pay Taxes or To Not Pay Taxes... That is the Question

When you're 70 1/2 you MUST start withdrawing a percentage of your IRA set by the government from your investments called the RMD (Required Minimum Distribution). If you regularly give to "certain tax-exempt charities" (for example your tithe), you can have your RMD paid directly to the tax-exempt entity and you don't have to pay income tax on that money which you would if it came to you first.

So here is the question: You've got to take the money out—Do you want to pay taxes on it or not?

New Tax Law Update

On December 18, 2015, Congress enacted a permanent extension of the Qualified Charitable Distribution from taxable IRAs and Roth IRAs. As a result, the law allowing individuals age 70 1/2 or older to make these gifts will no longer sunset (expire) after each tax year.

What is a Qualified Charitable Distributions from an IRA?

A Qualified Charitable Distribution from an IRA is a tax free charitable contribution that comes directly from your IRA rather than from your checking account or other personal financial accounts. Rather than taking the money out of your IRA, paying tax on it, and then giving what's left after taxes to your church or charity, you send the money directly from your IRA to the charity and pay no taxes on the money withdrawn. Of course there are special rules and you should consult with us and your financial planner before doing this.

What Are the Benefits of a Qualified Charitable Distribution?

  • Avoid taxes on transfers of up to $100,000 from your IRA to an qualified tax-exempt entity

  • Satisfy your required minimum distribution (RMD) for the year

  • Reduce your taxable income, even if you do not itemize deductions

  • Make a gift that is not subject to the 50% deduction limits on charitable gifts

  • Help further the work and mission of a charitable organization

So How Do You Make a Qualified Charitable Distribution?

  • Contact your IRA plan administrator to make a gift from your IRA.

  • Your IRA funds will be directly transferred to the tax-exempt entity.

  • Please note that Qualified Charitable Distributions do not qualify as an additional charitable deduction on Schedule A of your U.S. Individual Income Tax Return.

  • Please contact your charity if you wish for your gift to be used for a specific purpose.

Feel free to call us if you have any questions about the tax treatment of your Qualified Charitable Distributions.

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