Advanced Underwriting Consultants

Charitable IRA Opportunity Renewed

The federal government recently extended a charitable giving opportunity that had expired in 2009.  In 2010 and 2011, some of our senior clients will be able to make tax-favored charitable donations from their IRAs.

Prior to 2006, if a person wanted to make a charitable distribution using IRA money, he’d have to take a taxable distribution from the IRA and write a check to the charity.  Many taxpayers who did that were unable to claim a full charitable deduction for the money donated, because they didn’t itemize their deductions or because they otherwise failed to qualify for the deduction.

This year and next, taxpayers who are older than 70 ½ may donate money to charity directly from their IRA account. The distributions to charity will be tax-free. Taxpayers are allowed to donate up to $100,000 per year from their IRAs. Since the distribution will not be included in taxable income, individuals will not be able to claim a tax deduction for the charitable contribution.

One other positive result of implementing the strategy is that amounts sent directly to charity also qualify for meeting minimum distribution requirements.  Clients ought to seriously consider using IRA money instead of just writing a check if they are

  • Older than 70 ½,
  • Already supporting a charity with financial contributions, and
  • Facing the prospect of taking otherwise unneeded distributions from an IRA.

Since this provision was enacted so late in 2010, a special provision allows taxpayers to make charitable transfers during January 2011 and treat them as if made December 31, 2010.