In the down-to-the-wire wrangling in Washington over the fiscal cliff deal, there were details that may have escaped the average American. One of those details was the return of the IRA charitable distribution. That is right, on January 2, 2013; President Obama signed the American Taxpayer Relief Act of 2012 into law. The Act includes IRA charitable rollover provision which allows donors age 70 ½ or older to once again be able to transfer up to $100,000 from their IRAs directly to a qualified charity without having to pay income taxes on the transfer. The provision has been made retroactive to January 1, 2012. In addition, since Congress made this extension late, they have provided the following two special rules:
- Qualified distributions made by February 1, 2013 may be counted retroactively for the 2012 tax year.
- A taxpayer, who took a distribution from an IRA in December 2012, may make a contribution to a qualified charity before February 1, 2013 and treat the gift as a direct transfer.
The Act retroactively extends the use of the charitable IRA rollover to distributions that occur from January 1, 2012 through December 31, 2013, as long as certain requirements are met.
Who qualifies to make an IRA charitable distribution?
- Donors must be 70 ½ year old or older to qualify.
- The distribution must go directly from a Traditional IRA or Roth IRA to a qualified charity (except as noted in the special rule above due to the late provision).
Why make a charitable distribution?
- You have a passion for a particular charity and want to give back.
- Donors can transfer up to $100,000 /year from their IRA to a charity and not pay income tax on the money transferred.
- If you do not itemize your deductions and make charitable contributions you do not get any tax benefit. A gift from an IRA direct to a charity is excluded from reportable income so you still reap the tax benefit of gifting to a charity even if you do not itemize your deductions.
- Direct transfers will satisfy the IRA required minimum distribution as well.
It is not too late for 2012:
- Looking to reduce your IRA balance and 2013 required minimum distribution amount? Make a 2012 qualified distribution before February 1, 2013.
- Did you turn 70 ½ in 2012 and have not yet taken your 2012 Required Minimum Distribution? You can make a qualified charitable distribution before February 1, 2013 to satisfy for your 2012 required minimum distribution (due April 1 2013).
- Did you receive your IRA distribution after November 30th 2012 but before January 1, 2013? If you make a cash gift equivalent to the IRA distribution amount before February 1, 2013 you can treat the transaction as a 2012 qualified charitable distribution and, if applies, your 2012 required minimum distribution as well.
- Did you make a direct transfer from your IRA to a charity in 2012 anyway? Your direct transfer will meet the requirements for a qualified charitable distribution.
If you have questions or would like assistance in making a qualified charitable distribution from your IRA please contacts us.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional.