Owners of traditional Individual Retirement Accounts (IRAs) may use a special rule to achieve substantial income tax savings while benefiting charities of their choice. They may transfer up to $100,000 from their IRAs to charitable organizations without incurring income tax on the IRA withdrawal.
Federal law mandates that an IRA owner who reaches age 70 ½ must withdraw a minimum distribution each year. Withdrawal of the required minimum distribution (RMD) for the year in which the owner reaches age 70 ½ may be deferred until April 1 of the following year. The IRA owner must withdraw the RMD for each subsequent year by December 31 or be subject to a possible 50% penalty.
An IRA owner could withdraw the RMD and then contribute it to the charity. This owner would report the RMD as taxable income and claim an income tax charitable deduction for the contribution to the charity or charities.
Federal law limits the charitable deduction an individual may claim. Total charitable deductions cannot exceed 50% of an individual’s income, as adjusted. To illustrate the benefit of this rule, this letter assumes that the IRA owner may deduct only 50% of the contribution. The taxpayer would then pay tax on 50% of the RMD despite all the amounts withdrawn passing to charity.
When most people hear about elder abuse, they think of cruel or apathetic caregivers leaving elderly family and friends unattended or physically abusing them. But elder abuse is more than physical abuse: when someone takes any property - including real estate, cash, or any other asset or interest - from a person over the age of 65 by fraud or undue influence, it constitutes financial elder abuse.
Kevin O’Brien discusses the Barefoot v. Jennings decision in the article, “California Supreme Court Confirms Former Beneficiary’s Standing to Contest Trust.”
Travis Neal looks at the Spousal Lifetime Access Trust and how business owners can minimize the estate tax implications when their business is worth more than the gift and estate tax exclusion.
