IRA Charitable Rollover Made Permanent




Thanks to the year-end tax and budget deal which was signed into law by Congress on December 18, 2015, the Charitable IRA Rollover has been made a permanent part of the U.S. Tax Code. The change allows you to transfer up to $100,000 per year of your pre-tax IRA to a public charity without being required to include the distribution in your taxable income. In order to exclude the income, you must forego the charitable income tax deduction. 

The change is great news for many taxpayers, whether you itemize or not. As always, tax situations are unique. This article will give you an indication of whether a Charitable IRA Rollover would be beneficial to you, but be sure to consult with your attorney and tax adviser before making the decision.

Taxpayers who don’t normally itemize deductions can take great advantage of the Charitable Rollover, because they may lower their taxable income and still take the standard deduction. Since deductions aren’t normally itemized for these taxpayers anyway, nothing is foregone in making taxable income lowering Charitable IRA Rollover.

Taxpayers who typically itemize may still come out ahead by foregoing the charitable income tax deduction in lieu of the Charitable IRA Rollover, for the same reasons mentioned above. In many cases, when the standard deduction is combined with the exclusion of reportable income, greater savings are realized than those that are realized by the charitable income tax deduction. Taxpayers who live in income tax free states, such as Florida, may further benefit. Because taxpayers in these states have no state income tax to deduct on the federal tax return, less is saved by foregoing itemization in lieu of the standard deduction.

In both cases, taxpayers who can lower their income enough to enter a lower tax bracket stand to benefit the most. Then, in addition to the savings mentioned above, a lower rate may be achieved on the remainder of the reportable taxable income.

In any case, with a Charitable IRA Rollover, there is another winner: the charity. The permanent change to the Tax Code will allow individuals to pledge gifts both large and small that the charity can grow to count on over time, offering great stability to many organizations.

If you decide that a Charitable IRA Rollover is the right strategy for you, the transfer must go straight from the IRA custodian to the charity in order to qualify. Transfers to donor advised funds or to most private foundations will not qualify. Not all custodians are willing to make these transfers, but if the Charitable IRA Rollover option is something that is important to you, changing custodians is always an option. Finally, take care to ensure that you get nothing of value in return from the charity for your donation, including trinkets such as a coffee mug, t-shirt, or CD. Doing so will risk taking your donation out of the Charitable IRA Rollover qualification rules.

To learn more about Charitable IRA Rollovers and your particular options, contact Mammel Law at 248-644-6326.

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