Unless an IRA is a Roth, the account owner must take yearly minimum required distributions starting at age 70½ and pay tax on the withdrawals. With the charitable IRA rollover, as it is called, the donation can count against the minimum required distribution they would otherwise be required to take.
The fiscal cliff deal includes a special gifting opportunity for seniors. Those who are past age 70-1/2 must take required minimum distributions (RMDs) from traditional IRAs, and must pay income taxes on those distributions (this does not apply to Roth IRAs). What seniors may not know is the American Taxpayer Relief Act (commonly referred to as the Fiscal Cliff Deal) allows you to avoid income taxes by directing those RMDs to a qualified charity with an IRA Charitable Rollover. The rule applies for 2013, and includes a small window of opportunity for 2012 donations as well.
We have had this deal before, but Congress let it expire at the end of 2011. So, it’s likely that most people already took their 2012 RMDs, as required by law, before December 31st. If you didn’t, though, Congress has given you until January 31st, 2013 to make a charitable contribution that can satisfy all or part of your RMD for 2012. Confused? You may want to read more about it in the Forbes article, “Fiscal Cliff Deal Allows Giving IRA Assets to Charity.”
If this giving strategy sounds appealing to you, bear a few things in mind:
- To qualify, your donations must be directed from your IRA to the charity, and cannot be distributed to you first. Ask the account custodian to send the distribution directly to the charity.
- Your donations cannot go to donor-advised funds, supporting organizations or private non-operating foundations. Otherwise, the money can go to any organization to which you can make a gift that would qualify as a charitable deduction on your tax return.
Consult with your estate attorney if you have further questions about the gifting opportunities you may have with your IRA for 2012 …just don’t wait too long, you only have until January 31st!
For more information about dealing with the fiscal cliff in Fullerton, CA please visit my estate planning website.
Reference: Forbes (January 2, 2013), “Fiscal Cliff Deal Allows Giving IRA Assets To Charity.”