Charitable Giving from an IRA Now Permanent

Each year congress votes to appropriate spending permissions and tax breaks for the federal government. Early this year, Congress passed the Consolidated Appropriations Act of 2016 that authorized $1.1 trillion in spending and affirmed $700 billion in tax breaks. We believe one such provision, known as the IRA charitable rollover, may be of particular interest and importance to our clients. We’ve highlighted key insights and summaries are below.

Understanding legislation: IRA Charitable Rollover


This provision, made permanent in the 2015 federal spending package, grants the ability for retirees over the age 70 ½ to donate up to $100,000 in IRA assets to eligible charities tax free.

Generally, when you take a distribution from your IRA it is treated as taxable income. IRA’s typically mandate withdrawals when retirees turn age 70 ½. At this age, retirees are required to take minimum distributions (Required Minimum Distributions often referred to as RMD’s) from their IRA accounts. These required distributions are included as taxable income for the withdrawal year. Because the IRA charitable rollover provision considers contributions to charities to be donations, these contributions are not counted as additional taxable income for the donor. Furthermore, IRA distributions excluded from income are equivalent to a 100% deduction.

Why is this important?


Required RMD withdrawals, and additional taxable income, may be creating negative tax consequences in retirement like taxation of social security benefits. By making a charitable contribution from your IRA you can satisfy required RMD withdrawals without reporting additional income and thus incurring higher taxation.

The IRA charitable rollover provision is especially helpful for retirees who don’t need additional income from required RMD withdrawals. Through the provision these retirees can allocate required withdrawals to a charity and lower their tax burden.

Is this right for me?

As always, we advocate speaking with your TrueNorth Wealth financial advisor to assess your specific situation before taking action that may alter your tax situation. There are certain situations to consider where taking this provision may be beneficial.

To claim a charitable deduction the donor typically has to file an itemized tax return. However, the IRA charitable rollover provision offers tax benefits of charitable contributions without required itemized taxes. For retirees this may be especially helpful as deductions may be too small to justify the lengthy process of itemizing a tax return. Furthermore, charitable deductions are typically capped at 50% of modified adjusted gross income. Donating to a charity from an IRA account allows the donor to avoid this restriction.

Alternate considerations to keep in mind.

There are certain circumstances where the IRA charitable rollover provision might not be the best fit. For example, if a donor is able to save even more on tax through a charitable contribution of long-term capital gains property or securities. Donating long-term capital gains or real estate earns a charitable deduction equal to the property’s full fair-market value; allowing a donor to deduct the full fair-market value of the long-term appropriated property. In this situation a donor might lower their tax burden more by going this route than through the IRA charitable rollover provision.

Let our expert financial advisors help you figure out what plan is best for your financial situation. Contact our Salt Lake City office today with any questions you may have.