Many people have accumulated significant Individual Retirement Accounts over the years. When the account owner turns 70 ½ the owner is required to take out minimum distributions which are subject to Federal, State and local income taxes. If these accounts remain in a taxpayer’s estate, the tax on the value of the account and the future distributions can exceed as much as 70% of the value.
In order to help charities, such as EPIC Long Island, Inc. and the account owners, back in 2006, Congress made a temporary change to the tax law allowing individuals over age 70½ to make charitable gifts directly from his or her traditional IRA account to charity without incurring federal income tax on the withdrawal. These contributions would count towards the individual’s required minimum taxable distributions. Last year, Congress enacted as part of the Protecting Americans from Tax Hikes Act of 2015, by making this provision permanent.
If you have an IRA account where you need to take the required minimum distributions, this may be a great opportunity to help EPIC Long Island and your tax situation.
In order to qualify:
- You must be age 70½ or older at the time of gift.
- Transfers must be made directly from a traditional IRA account by your IRA administrator to EPIC Long Island, Inc.
- IRA funds that are withdrawn by you and then contributed do NOT qualify.
- Gifts from 401k, 403(b), SEP and other plans do not qualify.
- Gifts must be outright. Distributions to donor-advised funds or life-income arrangements such as charitable remainder trusts and charitable gift annuities are not allowed.
- The distribution can total up to $100,000.
- The distribution is not included in your gross income for federal income tax purposes on your IRS Form 1040.
- There would be no charitable deduction available since the income was not recognized.
- The distribution does count towards your minimum required distribution for the year from your IRA.
The benefits of a qualified charitable distribution:
As you plan your minimum required distributions for the year, if you do not need the money the government is requiring you to take, consider using as part of your charitable giving plan as there will be more of a tax benefit to you in doing so and would be a great way to help our organization.
If you have any questions regarding this, please contact EPIC Long Island’s Development Office at firstname.lastname@example.org or call 516-739-7733 ext. 626. Your tax advisor will be able to help you determine if this type of gift is best for your needs.