Dear Carrie: Can you make a gift to charity from your Individual Retirement Account in 2011 and not have to pay a tax? --A Reader
Dear Reader: I'm glad you're asking this question now because, while it's possible to make a charitable gift from your IRA without paying income taxes on it in 2011, you have to act quickly -- and you also have to be at least 70 1/2 years old. (Yes, sometimes age does have its privileges.)
What you're referring to is an IRA charitable rollover, which is a distribution made directly from an IRA to a qualified charity. While you pay income taxes on regular distributions from an IRA, these charitable IRA distributions aren't considered part of your Adjusted Gross Income, so you don't pay taxes on them. Last December, President Obama signed legislation extending this beneficial tax treatment through 2011. As of this writing, it's uncertain whether it will be extended into 2012, so currently you have until Dec. 31 to make this type of gift.
However, an IRA charitable rollover isn't just a question of timing. As you can imagine, the IRS has some definite parameters for determining if a gift from your IRA qualifies. And even if it does, you'll want to take a look at your own tax situation to decide if it makes economical sense for you. So before you act, make sure you understand the following important points.
The basics of an IRA charitable rollover are fairly straightforward:
--You must be at least 70 1/2 years old when you make the gift.
--The charity must be recognized by the Internal Revenue Service as a 501(c)(3) organization.
--The gift must be made directly from the IRA trustee (your bank or brokerage firm) to the charity.
--Your total IRA charitable distributions cannot exceed $100,000 in any tax year.
--You must get written acknowledgement of your contribution from the charity.
--You must act within the specified time limits. Currently, this means that funds must be transferred from your IRA to the charity by Dec. 31, 2011.
If you meet all these conditions, you won't pay income taxes on your gift. Another plus is that your IRA charitable rollover counts toward your Required Minimum Distribution. The flipside is that you can't claim a charitable deduction for the gift.
IS IT RIGHT FOR YOU?