Facing a Required Distribution from Your IRA?

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December 2015

If you are over the age of 70½ and have a regular IRA, you are required to withdraw an increasing percentage of your IRA balance each year.

Beginning in 2006 and continuing every year through 2014 it was possible for individuals over 70½ to make a direct transfer from their IRA to one or more charities. The amount transferred counted towards the mandatory distribution, and it was not included in taxable income. Such a gift was known as an IRA charitable rollover.

As of this writing, Congress had not yet renewed the legislation for 2015 though it is expected to do so and make it retroactive to January 1. As in the past, the legislation would likely be part of a package of other provisions that Congress has been regularly extending.

You could wait until the renewal legislation is enacted before authorizing a transfer, but that may not happen until late December—giving you little time to act. Alternatively, you may authorize the transfer now. In the unlikely event that the legislation is not renewed, the amount transferred would count towards your mandatory distribution and would be added to your taxable income. However, you would be allowed a charitable deduction for your gift; if you are able to use the entire deduction, it would in most instances substantially offset the amount added to taxable income.

Note: It is possible that your IRA administrator will be reluctant to make the transfer prior to the enactment of renewal legislation, but there is no good reason not to follow your directions. You can explain that you understand that if the legislation authorizing a tax-free distribution of IRA funds to a charity is not enacted retroactive to the beginning of the year, the distribution will be included in your taxable income. Do not agree to have the IRA administrator issue a check to you personally with the understanding that you can then make a comparable contribution to the charity. Insist that the check be issued in the name of the charity and sent directly to it. This will ensure that the distribution is not included in your taxable income if the legislation is renewed.

The IRA charitable rollover has been subject to the following conditions since its inception, and these conditions would probably apply to a 2015 renewal as well.

  • Your rollover gifts to all charities combined cannot exceed a total of $100,000 for the year.
  • The gifts must be made to a public charity such as ours; they cannot be made to a private foundation, a supporting organization, or a donor advised fund.
  • A donor cannot receive any financial benefit. This means your gift must be outright, not for a gift annuity or charitable remainder trust that pays income.
  • The rollover gift can be used to fulfill a pledge you have made to support our work.

If you are possibly interested in an IRA charitable rollover gift, contact us for instructions as to how to make your gift. We can also advise you about other ways to make charitable gifts involving retirement funds. Some of these apply to individuals who are younger than 70½ and who may have a retirement plan other than an IRA.

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