giving away your IRA

If you’re over 70 1/2 and have an IRA, you probably already know that you have to take money out of your account each year. IRA owners who fail to do so, can be hit with a whopping 50% penalty, per IRS rules.

You probably also know that giving money to charity helps out on your tax return.

The good news is that you can combine those two strategies and really save yourself some dough. By giving your RMD (required minimum distribution from your IRA) directly to charity, you can bypass other limitations on charitable giving and get a hefty write-off. The following WSJ article has some more details.


You Can Make Tax-Free Donations From Your IRA

But Do It Soon: IRS Provision Could Expire at Year’s End


Updated Nov. 30, 2013 9:29 p.m. ET

Q:I am required to withdraw a percentage of my IRA as I am over 70½. If it is sent directly to my church, rather than to me, will I have to pay tax on it?— B.G., Sebring, Fla.

A: No, as long as you make sure the money really does go directly from your individual retirement account to a qualified charity.If you follow the rules, none of that transfer will be counted in your income for this year. Also, the transfer will count toward your required minimum distribution.Our reader is asking about a popular charitable-giving provision that is scheduled to expire at the end of this year. Will it be extended? Nobody knows for sure. The law is very popular in Congress, but it could expire along with many other breaks scheduled to die at year’s end. If you’re considering this technique, do it before New Year’s Day.

The provision allows taxpayers 70½ or older to transfer as much as $100,000 a year directly to a qualified charity without having any of it considered as income.

To qualify, the distribution “must be made directly from the IRA to the charity,” according to Martin Hall and Carolyn Osteen, co-authors of the Ropes & Gray book “Tax Aspects of Charitable Giving.”

Directly really does mean directly. Under this provision, the IRA owner “cannot cash a check from her IRA account and distribute the proceeds to charity or endorse the IRA check to charity,” Mr. Hall and Ms. Osteen write.

The distribution must be made from an IRA.

“A distribution from a 401(k) plan, pension plan or other non-IRA retirement account does not qualify,” Mr. Hall and Ms. Osteen write. Mr. Hall is a partner of the Ropes & Gray law firm.

Ms. Osteen is a consultant and a retired Ropes & Gray partner.