In 2015, Congress passed the Protecting American from Tax Hikes (PATH) Act, which approves Charitable IRA Rollovers.
What is a Charitable IRA Rollover?
A Charitable IRA Rollover allows
- individuals who are 70 ½ years old to make a qualified charitable distribution
- from a traditional IRA
- to qualified charities
- for a total of $100,000 per year
The distribution must be made directly from the IRA to the qualified charities.
What are the benefits to the donor?
Charitable IRA Rollovers are tax-free and the donation counts toward the minimum IRA distribution required to be taken each year.
Keeping your IRA distribution out of your adjusted gross income may save you even more taxes.
What are the next steps?
Donors should contact their IRA Administrator. The amount must be distributed directly from the IRA to the qualified charities chosen by the donor.
Who could benefit from an IRA Charitable Rollover?
- If your Social Security income is taxable – by avoiding the recognition of taxable income, the donor may have less of their Social Security income subject to tax.
- If charitable deductions are not itemized – IRA rollovers especially benefit the nearly 40% of Americans who do not itemize deductions and therefore do not receive a tax benefit for their charitable contributions.
- If a donor is a resident of Ohio, Indiana, Michigan, New Jersey Massachusetts or West Virginia – these states provide no income tax deductions for contributions.
- Future estate tax implications – the combination of estate and income tax on IRA assets can produce an effective tax rate of up to 80%. The Charitable IRA Rollover gives individuals the opportunity to remove up to $100,000 of these assets from their estate with no tax consequences.
***The FAWCO Foundation does not provide tax, legal or financial advice. Please consult your own legal and tax advisors.