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