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 The taxpayer would then pay tax on 50% of the RMD despite all the amounts withdrawn passing to charity.
Owners of traditional Individual Retirement Accounts (IRAs) may use a special rule to achieve substa[..]
Trustees should anticipate that beneficiaries’ inquiries and demands will intensify.
Married couples often don’t give much thought to the characterization of their property as community or separate. In general, community property is all real or personal property acquired by a married person during the marriage. Separate property is all property owned by the person before the marriage, all property acquired by the person after marriage by gift, bequest or devise, and the rents and profits from the person’s separate property.
