January 14, 2013
The “fiscal cliff” legislation that was enacted on New Year’s Day delivered some good news for taxpayers age 70 ½ or older. The American Taxpayer Relief Act of 2012 provides these taxpayers the opportunity to take advantage of the old “IRA Charitable Rollover” which has now been extended through 2012 and 2013. This provision allows a donor to make a tax-free distribution from a traditional Individual Retirement Account (IRA) or Roth IRA provided that money is transferred to a charitable organization.
And more good news: if you wish to transfer a December 2012 withdrawal to a charity, you may still do so, but you must act quickly and ensure the contribution is made by January 31, 2013.
And there is more: if you were one of many who made a charitable gift from their IRA last year in the hopes that Congress would extend the IRA charitable rollover, you are in luck! Your tax benefit is retroactive to January 1, 2012.
Making a charitable contribution from an IRA rather than other assets may be especially appropriate if you:
- are required to take distributions but do not need them for living expenses,
- do not itemize deductions,
- may lose some of your itemized deductions because of your income level, or
- would not be able to deduct all of your charitable contributions because of deduction limitations.
On this last note, it is important to remember that the “fiscal cliff” legislation includes higher thresholds for limitations on itemized deductions. They are now set at over $250,000 for individuals (or $300,000, for couples). For these folks, the IRA Charitable Rollover may be even more important now than in the past.
A few limitations apply to this giving option:
- If a donor wishes to take advantage of the charitable rollover retroactively for 2012, they must do so by January 31, 2013.
- The maximum total amount a donor may transfer per year is $100,000.
- IRA charitable rollover gifts must be made to a public charity (not a private foundation), and they cannot be to a supporting organization or a donor advised fund.
- They must be for an outright gift and not used to fund a gift annuity or charitable remainder trust.
- The donor may not take an additional tax deduction on their income tax because they have already received a tax benefit by avoiding the tax on the IRA distribution.
Without a charitable rollover provision, using IRA funds for a charitable contribution would require withdrawing money from your IRA and then contributing it. The amount withdrawn would be taxable, and the deduction for the contribution may or may not offset the tax.
We have provided a sample instruction letter to your plan administrator for making an IRA charitable gift transfer.