A traditional individual retirement account, or IRA, provides you with a tax-deferred way of saving for retirement. The Internal Revenue Service will tax your contributions and earnings when you make withdrawals from the account. Although you have the option of making withdrawals beginning at age 59 ½, the IRS mandates regular distributions beginning at age 70 ½. By donating the mandatory distributions directly to charity, however, you do not have to pay federal income taxes on a mandatory withdrawal.
Tax Relief Act
A temporary U.S. law included in the Tax Relief Act of 2010 allows you to make contributions to public charities directly from your IRA without paying federal income taxes. The money, which is otherwise taxable, goes directly to charity without increasing the amount of your adjusted gross income. However, the IRA donation provision in the Tax Relief Act was set to expire on Dec. 31, 2011 unless Congress approves an extension.
Because the IRS counts mandatory distributions from your IRA as taxable income, the distributions could result in a higher taxation. So long as your annual income -- including Social Security benefits, IRA distributions and other income -- do not exceed $25,000 if you are filing individually or $32,000 filing jointly, you’ll owe no income tax. However, the IRS may tax up to half of your Social Security benefits if your annual income exceeds these amounts. By donating your IRA’s mandatory distributions to charity, you can avoid paying taxes on your Social Security income altogether.
If your mandatory distributions exceed $100,000, you cannot donate your entire IRA withdrawal. The IRS limits the amount you may donate from an IRA to charity to $100,000 per year. However, if you and your spouse each have separate IRAs in your own names, together you may donate a total of $200,000 per year, or $100,000 from each account.
You may only deduct donations that you make to IRS-approved charities. To help you identify an IRS-approved charity, use the list of eligible charities in IRS Publication 78. To quickly search for a charity by name, city, state and country, use the online version of IRS Publication 78. The IRS also publishes a list of charities recently deleted from the publication as well.
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