IRA Distributions to Charity The tax law passed to avoid the Fiscal Cliff 13 days ago extends through December 31, 2013, the provision allowing tax-free distributions from individual retirement accounts to public charities, by individuals age 70 1⁄2 or older, up to a maximum of $100,000 per taxpayer per year. IMPACT. The Act provides special transition rules. One rule allows taxpayers to re-characterize distributions made in January 2013 as made on December 31, 2012. The second rule permits taxpayers to treat a distribution from the IRA to the taxpayer made in December 2012 as a charitable distribution, if transferred to charity before February 1, 2013. For an example of the second rule,
BACKGROUND: Tom and Mary Jones (fictitious names) are both over 70 ½ and own IRA accounts that require them to take Minimum Required Distributions. They received $6,000 of such distributions in December 2012. Their 2012 income from interest, dividends, pension, and taxable portion of Social Security equals approximately $76,000. Because Tom and Mary do not have a mortgage, they no longer itemize their deductions even though they gift over $6,500 per year to their church and favorite charities. Tom and Mary’s Federal Income Tax on Form 1040 equals $6,514.
ACTION: Under the new tax law passed about two weeks ago to avert the Fiscal Cliff, Tom and Mary can write up to $6,000 of checks to their church and favorite charities before January 31, 2013 and reduce, by like amount, the $6,000 of Minimum Required Distribution that occurred in December 2012. Tom and Mary will save $1,665 of Federal Income Taxes if they write checks to their church and favorite charities equaling the full $6,000.
DETAILS: here are some additional details you should know:
- Only those IRA Minimum Required Distributions made in December 2012 qualify. If a distribution was made in November 2012 or earlier, it does not qualify.
- Only checks written to charitable organizations between January 1, 2013 and January 31, 2013 qualify.
- Distributions from Beneficiary IRA’s do not qualify for this special treatment.
- NOTE: if the above fact pattern does not work for you because you received your Minimum Required Distribution before December, keep in mind that Minimum Required Distributions in 2013 can also be excluded from income; except, in 2013 you must have the IRA Custodian make the Minimum Required Distribution (or any part) payable to your favorite charitable organization.