Make That Required Minimum Distribution go Directly to Your Favorite Charity

Congress used to wait until the end of the year to extend the law that let people make a tax-free donation of up to $100,000 from their IRA. This left some folks scrambling to make the contribution before the RMD deadline. However, now Congress has made the law permanent, which means that if you’re 70½ or older, you can transfer your 2016 RMD to charity at any point. 8-9-2016

The donation counts as your RMD but won’t increase your adjusted gross income, according to Kiplinger’s article “Donate Your RMD Tax-Free to Charity in 2016.” That can be helpful if you don’t itemize and can’t deduct charitable contributions. In addition, keeping some or all of your RMD out of your adjusted gross income could help you avoid the Medicare high-income surcharge or help make less of your Social Security benefits taxable.

The RMD must be transferred directly from the IRA to the charity to be tax-free. However, if you withdraw it from the IRA first and then give it to the charity, you get to deduct the gift as a charitable contribution (if you itemize), but the withdrawal is included in your AGI.

Now that this law is permanent, IRA administrators have begun to simplify the process. As an example, Fidelity will soon introduce a new form to make it easy to transfer the money and clearly state your wishes to the charity. If your IRA has check-writing privileges, you can write the check directly from your account to the charity. Otherwise, the IRA administrator will write the check and send it directly to the charity. However, the charity may not receive clear instructions as far as who it’s from or where the money should be directed.

If your IRA administrator doesn’t allow check writing but will transfer money directly to the charity, contact the charity ahead of time and let it know a check will be coming from your IRA. The charity sends you a receipt for your taxes. You can instruct the charity as to which fund or program you’re supporting. One last note: you can make the tax-free transfer from the IRA to a charity but not to a donor-advised fund.

Speak with an estate planning attorney to explore how charitable giving can be part of your estate plan to minimize taxes and create a legacy.

Reference: Kiplinger (May 13, 2016) “Donate Your RMD Tax-Free to Charity in 2016”

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