Let’s Get Charitable!

May 2017

Tax day may have passed, but it’s important to already start thinking about your upcoming taxable year. For instance, are you required to take minimum distributions from your IRA but don’t want or need the additional taxable income? Are you charitably inclined?

On a temporary basis since 2006, IRA owners have had the ability to exclude up to $100,000 from gross income for distributions paid directly from their IRAs to a qualified charity. The Protecting Americans from Tax Hikes Act of 2015 (PATH) had made this IRA charitable rollover provision permanent.

Here is the deal. When you take distributions from your traditional IRA, the distribution is included in your adjusted gross income (AGI) and subject to income tax. The charitable rollover provision allows distributions to come out of your traditional IRA without counting them as a part of your AGI. You won’t pay income tax on these distributions and your favorite charity comes out the winner!

In order for this to work, certain requirements must be met. You must be at least 70.5 years of age and the distribution must:

  1. Come from your traditional or Roth IRA;
  2. Go directly from your IRA to the charity (which means you can’t receive a distribution check first);
  3. Go to a public charity, so generally speaking a donor-advised private fund or private foundation does not qualify;
  4. Be an otherwise deductible charitable contribution, meaning no gifts in return for your donation; and
  5. Be 100% includible in your gross income.

Now that we have certainty that the charitable rollover will be available in the future, this is a great tool to keep in your charitable tool box.

This post was written by Karen Schlotthauer, an attorney in our Trusts & Estates practice group. If you have questions about estate planning, Karen can be reached at karen.schlotthauer@fmjlaw.com or (952) 995-9500.