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 The taxpayer would then pay tax on 50% of the RMD despite all the amounts withdrawn passing to charity.
The Bay Area’s premier trust and estate law firm Hartog, Baer & Hand will be known as Hartog, Baer, Zabronsky (HBZ), effective immediately.
Many trustees employ counsel to provide advice on dealing with and responding to inquiries from beneficiaries. Trustees may believe that their communications with and advice from counsel are confidential and cannot be disclosed to the beneficiaries without their consent. The recent court decision in Fiduciary Trust International of California v. Klein (2017) 9 Cal. App. 5th 1184 is a cautionary tale that warns trustees against assuming that all communications with an attorney are confidential.
High property values in California highlight the need for careful property tax planning. If you have owned your property for many years, it is likely that your property's assessed value for property tax purposes is significantly lower than today's fair market value. If your property should be reassessed, you or your family members could be faced with a significant increase in the annual property tax.
