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Your traditional or Roth IRA is an excellent means of making a charitable gift. And with the Pension Protection Act of 2006 it is now even easier to utilize this exceptional tool for current gifts to CWA’s important work.

What the IRA Rollover means for current gifts

You may make distributions of up to $100,000 to a qualified charity, like CWA, from a traditional or Roth IRA without including the gift in your gross income. There is no charitable income tax deduction because distributions to charity are never added to you gross income.

To qualify: the gift must have been otherwise includible as ordinary income, and the owner of the IRA must be 70 ½ or older. The gift must be made to a qualified tax exempt charity like CWA for its direct use, and not to a supporting organization (a private or supporting foundation or a donor advised fund).

How does this affect you?

Do you take the standard deduction on your income taxes? If you’re one of the majority of people who don’t itemize on your tax returns, using your IRA to make charitable gifts is perfect for you. The IRA distribution that is given to charity never affects your gross income and is not taxed, yet you still receive your standard deduction!
Have you reached the 50% AGI limit for charitable deductions? You can give an additional $100,000 from your IRA with no tax penalties!
Do you take only your required minimum distribution (RMD)? The IRA rollover qualifies for your RMD. So, if like many people you don’t need the distributions to cover living expenses, or if you wait until November or December to take them, this is a convenient way to make your end-of-year charitable gifts.
Does your IRA hold the majority of your assets, or is it your major income source? You can simplify matters come tax-time by making your gifts directly from your IRA without having to account for it on your income tax returns.
Do you receive Social Security? Many social security recipients find their IRA distributions cause their income to increase from the 50% taxable level to the 85% taxable level. By giving part or all of the IRA distributions to charity, there could be substantial tax savings.
Does your state not allow charitable income tax deductions? If your state has no allowance for charitable income tax deductions, giving directly from your IRA will save you on your state taxes. The gift amount will not be added to your gross income and therefore will not be taxed.

IRAs as Legacy Gifts

Most people have no idea just how many different taxes your IRA will be subject to if left for your heirs. In some states they are subject to as many as 6 different taxes and can be reduced to only 40% of their original value by the time they reach your children.

Because of this heavy taxation, traditional and Roth IRAs are exceptional assets to use for charitable bequests. A common method is to leave heavily taxed assets, like IRAs, to charity and provide for your heirs with other (more tax-friendly) assets. When you are making your estate plans be sure to speak to your advisor about the taxation of different assets. Proper planning can maximize the legacy you leave behind for your heirs and your favorite charities.

As always, be sure to consult your professional advisor regarding how such plans will affect your personal tax and financial situation. This information is provided as a service by CWA, and is, by necessity, general in nature.