IRA-to-Charity Tax

by Herb Kirchhoff

You can donate to your favorite charity from your traditional tax-deferred individual retirement account (IRA) without owing taxes or penalties on your donation. Your donation is a nontaxable Qualified Charitable Distribution if it conforms to certain rules. For instance, you can’t make a nontaxable charitable donation from a SEP-IRA or SIMPLE-IRA because these are employer-sponsored plans.

Age Qualification

You must be age 70 1/2 or older to make a Qualified Charitable Distribution from your IRA. Your charitable distribution will count toward the required minimum distribution you must start taking from your IRA when you reach age 70 1/2. You must receive an acknowledgement of your IRA distribution donation from the charitable organization -- that’s the same as you would need to get a tax deduction for a donation you made out of pocket. The notice should state the donation date, the amount you donated and that you received no substantive benefits from your donation to the organization.

Recipient Qualification

The charity receiving your IRA donation must be a non-profit organization that qualifies under Section 501(c)3 to receive tax-deductible contributions. Examples of qualified groups include churches and other religious organizations, United Way, Red Cross, Goodwill Industries and war veterans’ groups. Donations from your IRA to organizations that don’t qualify for tax-deductible contributions will count as a taxable distribution to you. Examples of nonqualified organizations include civic leagues, labor unions, lobbying organizations, political parties and foreign organizations.

Donation Limit

You can make a tax-free charitable donation of up to $100,000 per year from your traditional IRA. By donating to charity, you avoid the taxes you would otherwise owe on your IRA distribution. This means you can’t count a Qualified Charitable Distribution from your IRA as a charitable contribution deduction from your regular income. If you donated more than $100,000, the excess will count as a taxable distribution paid to you. However, you can claim the excess on your Schedule A itemized deductions as a charitable contribution deduction. If you are married filing jointly and each of you has a traditional IRA, you and your spouse each can contribute up to $100,000 as a nontaxable charitable donation from your respective IRAs.

Other Rules

If your IRA includes nondeductible contributions you made in addition to your deductible contributions, your Qualified Charitable Distribution will be counted first against your deductible contributions. If your donation exceeds the deductible contributions in your IRA, you can take a charitable contribution deduction from your ordinary income on the amount of your donation that came from your nondeductible IRA contributions.

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