12/19/2010 – with the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the provision for an IRA owner who is at least age 70½ to make a direct charitable contribution of up to $100,000 from his or her IRA has been extended through the end of 2011. Such a direct contribution can be used to satisfy the IRA owner’s Required Minimum Distribution.
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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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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[...] WordPress PluginWe discussed the IRA Charitable Contribution option some time ago in the post “Last Chance for Charitable Contributions from Your IRA”, and it’s possible from that article that you got the impression that you are no longer able [...]
Ran across your web site as I searched for charitable contributions from an IRA. I’m over 70.5. In 2008, I made a charitable contribution from my IRA. I’m being challenged by the IRS. Apparently the Foundation (Mennonite Foundation Charitable Gift Fund, Goshen, IN) I contributed too is tax exempt from personal accounts but not from an IRA!!! Are there such distinctions? How does one sort out these fine distinctions? What do you know about this?
Forgot to mark “notify me via email” box
ddd
Del -
I’m guessing that the foundation you’re asking about is a private foundation, rather than a public charity. This would be the only reason I can come up with for a challenge to your contribution – and it’s not very clear from the documentation just how a person is supposed to know the difference, other than to ask the organization before making the contribution.
The difference is in how the foundation is classified (what the function of the organization is) and how it is supported. If the foundation is a church, school, or hospital, or an educational organization, then it is likely a public charity. In addition, if the support for the organization is made up of public support (one-third or more), or if the foundation can prove to the IRS that it operates as a charitable organization (the definition is quite complex).
Chances are that the foundation directors or management will be able to tell you if they qualify (or qualified in 2009) as a public charity. If they do not, all is not lost (in your situation with the IRS), but you’ll need to unwind the contribution transaction (from the tax return standpoint) and determine tax owed under normal circumstances. Realize that there may be substantial limits to the amount that you can contribute to a private foundation.
Hope things work out for you – let me know if there is anything I can do to help you with your situation.
jb
Thanks for the reply. I have a call in to the directors to get more clarification. I suspect that because the afore mentioned foundation will “hold” the money in interest bearing or investment account until I “suggest” a qualifying charitable organization I want to distribute the money too (technically, I have relinquished all rights to the contribution when made). Are you familiar with this type of foundation and what is your opinion on whether this would have anything to do with qualification. Thanks. ddd
The qualification is up to the IRS’ definitions, and the foundation will know if they are or are not qualified, or rather were or were not qualified when you made the contribution.
Best wishes for you – hope things work out well.
jb
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