Don’t Miss Out on Unique Charitable IRA Provision

By Aaron Nathans

An annual deadline is approaching for a relatively new, popular provision of the tax code aimed at encouraging older Americans to make charitable donations.

Under the provision, Americans 70 ½ and older can exclude from their taxable income up to $100,000 for “qualified charitable distributions” from their Individual Retirement Accounts. This can count toward a taxpayer’s annual required minimum distribution from an IRA.

Each year, Americans are required to make distributions by Dec. 31 in order to qualify for that year’s tax deduction.  

The charitable rollover had been a temporary provision enacted by Congress, and had been set to expire in 2007. Congress extended it each subsequent year, and, along with the president’s signature, made the rollover permanent in 2015.

Contributions to donor-advised funds and private foundations, except in narrow circumstances, do not qualify for tax-free IRA rollover contributions. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are ineligible for the tax-free treatment.

The distribution must come directly from the fund’s administrator, and the donor needs to send a letter requesting the distribution be made from their fund directly to the charity.

Donors cannot receive any goods or services in exchange for their contributions, and must obtain a receipt to have it counted at tax time.

As always, consult with your tax professional before you act. To consider making a charitable rollover contribution to AIER, contact Ute DeFarlo at ute.defarlo[at]aier[dot]org or 413-645-3336.

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