The IRA gift provision is now permanent
by Mandy Hicks
By Nathan Vinson, Attorney
English, Lucas, Priest and Owsley, LLP
Over the past decade, Congress has passed a law – usually at the last minute – that allows for gifts directly from Individual Retirement Accounts to charitable organizations with favorable tax treatment. The gifts can be up to $100,000 to qualifying organizations, but it has to be made directly to the charity. The IRA gift provision has been a popular way for some to give to their favorite organizations, for two key reasons:
- The gift counts towards your required minimum distribution from your IRA for the year. As you may know, seniors ages 70.5 and up are required to take a minimum distribution from their IRA each year.
- The gift is excluded from taxable income. The money won’t be included in your taxable income (as it would otherwise) if the money is paid directly to the qualifying charity.
Only those who are 70.5 or older can take advantage of it.
The IRA gift provision is usually part of yearend legislation known as “tax extenders,” which are tax provisions that have repeatedly expired but then reinstated. In 2015, the IRA gifting provision was part of the Protecting Americans from Tax Hikes (PATH) Act, which retroactively reinstituted the provision back to January 1, 2015. However, this time the provision is permanent, so seniors can now rely on it as a way to plan their charitable giving every year.
How to take advantage of the IRA gift provision
For those who want to make a gift to charity, it’s best to include your professional advisor in any plans you’re making. You’ll want to ensure the organization you’re planning to give to qualifies under the law. You’ll also want to be sure you follow the correct procedures for making the gift. For example, the money needs to go directly from your IRA to the charity. Do not take it as a withdrawal and then write a check to charity – it will not qualify as a tax-free gift under the law.
Also, you may want to alter your estate plans if you make a major gift from your IRA to charity. You may choose to give to a charity now to meet a pressing need – or to ensure your wishes are followed and respected – rather than through your estate. The IRA provision gives you another way to do so.
For those who are younger than 70.5, this new law may alter your estate plans – and even those much younger may want to consider how this might play into IRA contributions.
If you need assistance with your tax planning or with making a gift from your IRA, call me, attorney Nathan Vinson, at (270) 781-6500 or firstname.lastname@example.org. I can help you make your estate plans, and I also work with clients on handling tax matters. Please let me know if I can assist you.