How To Make A Sizable Charitable Donation From Your Ira Tax Free

How To Make A Sizable Charitable Donation From Your Ira Tax Free

How to​ Make a​ Sizable Charitable Donation From Your IRA—Tax Free
If you​ are over 70 ½ years old,​ want to​ make a​ gift for a​ special charitable project,​ but your only liquid asset is​ your IRA,​ I​ have good news for you.
On August 17,​ 2018 the​ Pension Protection Act of​ 2018 (PPA 2018) was signed into law .​
This nearly 1,​000 page piece of​ legislation marked the​ most sweeping changes to​ the​ pension arena in​ 30 years.
Let me give you​ two common examples that contain problems faced by seniors solved by PPA 2018…
Roger and Claire are retired .​
Roger spent his working career in​ the​ aerospace industry .​
He was more than well compensated and over the​ years accumulated a​ very large 401(k) plan .​
The plan grew nearly 500% during one 5 year bull market .​
When he retired,​ he rolled his 401(k) into an​ IRA .​
Other than their home,​ the​ IRA is​ far and away their biggest asset.
For years,​ Roger and Claire have been supporters of​ the​ Humane Society .​
Their local chapter is​ building an​ entire new wing on​ to​ their kennels .​
Roger and Claire would love to​ make a​ significant donation—somewhere in​ the​ neighborhood of​ $50,​000 to​ $100,​000.
Bill and Diane both worked during their entire careers .​
Mary taught 6th grade for 40 years .​
Bill was a​ career military officer .​
After his retirement,​ he spent another 20 years working in​ the​ private sector .​
Bill and Diane have more retirement plans than Carter has pills .​
Like Roger,​ Bill has a​ large IRA.
When Bill turned 70 ½,​ he was required to​ start taking the​ minimum required distributions each year from his IRA .​
But Bill and Diane don’t need the​ income; their other retirement income sources are more than adequate .​
Nevertheless,​ Bill must take these RMDs and pay tax on​ them as​ income.
Bill and Diane have been active in​ their church all their married life,​ all 45 years of​ it .​
Their church just bought a​ new organ .​
It was a​ purchase of​ necessity inasmuch as​ the​ old (very old) organ was becoming hazardous to​ play .​
The organist had to​ be careful or​ the​ organ would start to​ smoke .​
So,​ needless to​ say,​ the​ church did not pay cash for the​ organ; the​ majority of​ it​ was financed .​
Bill and Diane would like to​ pay off the​ organ.
Both Roger and Claire and Bill and Diane are warm-hearted people .​
Their devotion to​ charitable causes and their church is​ representative of​ the​ many people who support charitable organizations which reach out to​ help people.
But,​ prior to​ the​ passage of​ PPA 2018,​ their generosity could have been thwarted by several things…
1 .​
In both cases,​ their principal liquid asset was an​ IRA .​
Neither couple had other assets from which to​ make a​ gift.
2 .​
If the​ large sums were withdrawn from their IRAs,​ they would be subject to​ ordinary income tax.
3 .​
If given to​ a​ charity,​ rules which limit the​ amount that could be deducted as​ a​ charitable contribution would have to​ be followed .​
This means that they may still have to​ pay tax on​ a​ portion of​ their IRA withdrawals.
But thanks to​ provisions in​ PPA 2018,​ Roger and Claire can make their gift to​ the​ Humane Society and Bill and Diane can pay off their church’s new organ using money from their IRAs and not pay any tax on​ the​ withdrawals .​
But they have to​ follow the​ rules…
1 .​
First,​ you​ must be at​ least 70 ½.
2 .​
You can give up to​ $100,​000.
3 .​
This only applies to​ 2018 and 2018.
4 .​
You can’t withdraw the​ money from your IRA and then give it​ to​ your charitable cause .​
The transfer must be made directly from the​ custodian of​ the​ IRA to​ the​ charity.
5 .​
These gifts,​ called IRA charitable rollovers,​ count towards your required minimum distribution for the​ year.
6 .​
IRA charitable rollovers are not permitted for gifts to​ donor advised funds and supporting organizations .​
However,​ there are some exceptions that apply to​ funds held by community foundations: scholarship,​ field of​ interest,​ and designated funds qualify .​
So the​ first step is​ to​ contact your intended cause to​ see how they are classified and whether or​ not the​ law allows an​ IRA charitable rollover gift.
7 .​
The gift must be a​ pure gift .​
In other words,​ there can’t be any personal benefit strings attached like tickets to​ an​ event.
8 .​
You don’t have to​ report the​ IRA charitable rollover as​ income.
9 .​
However,​ you​ don’t get a​ charitable deduction for your gift .​
Sorry,​ you​ can’t have your cake and eat it​ too.
This new law is​ a​ real winner .​
In these two examples,​ the​ Humane Society is​ able to​ build new kennels and a​ church pays off an​ organ they thought they were going to​ have to​ finance .​
The donors were able to​ make it​ happen despite the​ fact that the​ only real asset they had was an​ IRA .​
I​ hope this law is​ extended beyond 2018.
But like anything new,​ the​ name of​ the​ game is​ to​ communicate what is​ possible .​
The law was put into effect in​ late August 2018,​ so that didn’t leave a​ lot of​ time for IRA charitable rollovers that year .​
If you,​ or​ anyone you​ know,​ has an​ IRA and would like to​ make a​ gift,​ make them aware of​ this new option .​
If you​ are involved in​ a​ public charity,​ help their planned giving officer get the​ word out.
I do not dispense tax advice .​
It is​ imperative that you​ consult with your tax advisor and the​ charity to​ make sure it​ is​ qualified and that the​ gift is​ made in​ the​ proper manner.

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