The IRA Charitable Rollover: A Great Way to Support your Favorite Charity

The holidays are just around the corner, and many of us are starting to think about ways to give back to our community or favorite charities. There may be a way you can give back while taking advantage of tax and investment requirements.

Anyone over 70½ must take annual distributions from his or her IRA. Annual distributions for the current year must be taken before December 31, 2011. If this is on your year-end “to do” list, you may be able to help yourself and help the organization of your choice at the same time. You can ask that a payment be made directly from your IRA to a charitable organization. Here are some of the ways this can work for you:

It’s easy.

Directing a distribution to the organization means you do not need to write a separate check to them. The money goes directly from your IRA to the charity!

It can save income tax if you don’t itemize deductions.

Money that is paid directly to charity from your IRA is not reported as income on your income tax return. If you don’t itemize deductions, a distribution from your IRA directly to charity will mean you pay less income tax than you would if you made a gift of the same amount from other funds.

If you do itemize deductions, direct payment from your IRA can mean you don’t give more than you can deduct.

In general, you can’t deduct gifts to charities totaling more than 50% of your gross income. Because a
distribution directly from your IRA to a charitable organization is not deductible, it does not count against
that 50% limit.

It can result in lower tax on your Social Security income.

If your other income is above certain thresholds, Social Security income will be taxed at either the 50% or the 85% rate. Gifts made directly from your IRA to charity are not counted as income. In some situations, this means less of your Social Security income will be paid to Uncle Sam.

It gives you flexibility in how you support your favorite charity.

You can give a maximum of $100,000 to charity from your IRA. If you want to make a donation before year-end but prefer not to part with investments you have outside of your IRA, the IRA Charitable Rollover enables you to hang on to the assets you prefer. This can literally mean your other money stays in the bank.

The IRA Charitable Rollover cannot be used to contribute to a donor advised fund; however, other contributions to a community foundation qualify. The Alaska Community Foundation’s Alaska Fund, which
benefits causes throughout the state, is one example.

Remember that money coming to you from a Roth IRA is never subject to income tax. This means a gift to
charity from a Roth IRA is not a good idea.

We recommend you contact your CPA right away to see if a contribution from your IRA directly to charity
is a good option for you. If so, remember that the check from your IRA needs to be made payable directly
to the charity you have selected. You will need the full legal name and mailing address of the nonprofit
organization, as well as its Tax ID number. You may divide the distribution among multiple organizations
or use a portion of the total for a contribution to charity.

Many of our clients give generously to nonprofit organizations. We commend each of you who make a
difference in the lives of others this way.