Is a Charitable IRA Rollover Right for You?

T&E Chat

05.23.16 | T&E Chat

If you’re charitably inclined, age 70½ or older, and have a significant balance in an IRA, a charitable IRA rollover — formally called a “qualified charitable distribution” — permits you to annually make up to $100,000 in tax-free IRA distributions to qualified charities. Charitable IRA rollovers also offer estate planning benefits which were made permanent in late 2015.

What are the benefits?

There are several benefits to this strategy:

• Traditional IRAs can be costly inheritances because the beneficiaries will owe income taxes on the distributions they receive. If you instead donate your traditional IRA assets to charity and bequeath Roth IRAs or investments held in taxable accounts to your loved ones, income taxes will take a smaller bite out of their inheritances.
• Your charitable rollover can be used to satisfy your required minimum distribution for the year.
• In addition, it provides a tax advantage if you otherwise would be unable to deduct an equivalent charitable donation because, for example, you don’t itemize or you’ve already exceeded adjusted gross income limitations on charitable deductions for the year.

What are the requirements?

To qualify for a charitable IRA rollover, in addition to meeting the age requirement, you must:

• Transfer the funds directly from the IRA to an eligible charity, and
• Document the rollover with the same type of written acknowledgment from the charity that you would need to support a charitable deduction on your income tax return.

There are two other requirements as well to keep in mind:

• The distribution to charity must be one that would be fully deductible (without regard to percentage-of-income limitations) if you made the donation yourself. In other words, you can’t receive something of value in return.
• You must make the distribution by December 31, 2016, to include it on your 2016 tax return.

Before taking action, contact me at SDitman@berdonllp.com or your Berdon advisor to ensure you meet all the requirements for a charitable IRA rollover.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, New York Accountants, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.