Last Chance for Charitable Contributions from Your IRA

There is a provision expiring at the end of 2009 for folks over age 70½ who wish to make contributions to their favorite charities from their IRAs.  This provision allows you to make the contribution directly from your IRA, so that the income never shows up on your tax return at all.

Why does this matter?  Aren’t you able to make a contribution and follow that up with a deduction on Schedule A of your tax return?  Well, the difference is that if you make the contribution directly to the charitable organization, the income never shows up on your tax return.

This income, if it is included in your AGI (and MAGI), will impact many of your other deductions – for example, medical expenses are deductible only to the extent that they exceed 7.5% of your AGI.  If your AGI is inflated by a distribution from an IRA that is then contributed to a charity, of course the 7.5% will be much higher, thus eliminating some of your expenses from being deductible.

Eligibility

As mentioned before, to take advantage of this, you must be over over age 70½ and subject to Required Minimum Distributions (RMD) from your IRA.  There is also a limit of $100,000 that can be contributed directly to the charity and excluded from your gross income.

So through the end of 2009, you are still able to make this direct contribution from your IRA.  These contributions can also be used to satisfy your RMD for the year… just make sure that the distribution is made payable to the charitable organization.

Beginning in 2010, you’ll have to claim the distribution as income, and then make the contribution after that, so this will in effect be a tax increase for the folks that are taking advantage of this provision.

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Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry.  . Read more from this author