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Qualified Charitable Distributions Win Win

New Rules for Qualified Charitable Distributions

Can I make Qualified Charitable Distributions from my IRA?

New Rules for Qualified Charitable DistributionsFor years, the politicians have been permitting Qualified Charitable Distributions from IRA accounts for one year, letting them expire, and then renewing them.  Perhaps the incentive for politicians to do this is that they can raise taxes and cut them too, giving both sides of the political divide something to be happy about.  Charitable distributions from an IRA are very popular with voters because they are one of the most tax efficient ways available to make charitable gifts.

Finally, the politicians made them permanent in the 2015 Protecting Americans from Tax Hikes Act (“PATH”).  The now permanent extension is retroactive to January 1, 2015. This reauthorizes Qualified Charitable distributions from IRAs.  This is sometimes called a Charitable IRA Rollover.  It means an IRA owner can make a nontaxable distribution directly from their IRA to a qualified public charity up to $100,000 each year.
This it Win-Win for all concerned.

The benefits from Qualified Charitable Distributions are Significant:

  • You can make charitable gifts directly from your IRA with pre-tax dollars (which gives you more charitable bang for your proverbial buck)
  • The gift amount is excluded from your taxable income (this is arguably better than a deduction, because the distribution is never part of your income)
  • The gift amount can be applied towards your annual Required Minimum Distributions (“RMD”) but may be more than your RMD up to the $100,000 limit.  (This is particularly beneficial for those who want to make charitable gifts and don’t need the RMD right now to support their living needs but may need them down the road.)

What Qualifies as a Charitable Distribution?

In order to for the charitable distribution to be “qualified” it must meet the following requirements:

  • You must be at least 70½ years of age at the time of the distribution.
  • The distribution must be from your Roth or Traditional IRA.
  • The distribution must be made directly from the IRA custodian to a qualifying charity such as Legacy Global Foundation, Inc. (the gifts cannot go to your Donor Advised Fund or private foundation, but can be for a specified charitable purpose or use).
  • Qualified Charitable Distributions are limited to $100,000.00 per individual each year .  Your spouse who qualifies may also make Qualified Charitable Distributions from his or her IRA.

This is also a highly tax efficient way to support your favorite charitable cause during your lifetime while also retaining the value of the IRA in case you need it for future use.   This can also be part of an overall plan to reduce the taxes on your IRA to zero at death.  In some cases an IRA  can be subject to multiple taxes, federal and state income taxes, estate taxes, excise taxes, etc.  Naming your Donor Advised Fund as the beneficiary at death completely eliminates all taxes on your IRA.  The value that would have otherwise gone to your heirs can, as needed, be replaced with other financial instruments.

Go ahead.  Make that charitable gift in a way that maximizes the amount going to charity and minimizes the amount going to taxes for the politicians to play with.  Who do you trust more to do good things with your money, your favorite charity or the politicians?

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