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Lauren's Updates

The following content originally appeared in an article by Jeff Brown in US News & World Report on December 5, 2016.

How Your IRA Can Help Charity

Careful handling and a tax benefit can allow people to donate more money.


While people give to charity all the time, the holidays are the peak season. Not only do hearts soften, but with the end of the year approaching, many givers want to boost their tax savings for the next April.

That may seem mercenary – trying to get something for yourself seems to soil the gesture – but it isn't necessarily so, as a tax benefit can allow you to give more than you would otherwise. If you can afford $1,000, careful handling can assure your charity receives the full amount, while casually taking that sum out of an account could reduce the donation to $750 or less, depending on your tax bracket. 

This year, individual retirement account investors aged 70.5 and older have an especially good opportunity by using a qualified charitable distribution, moving money directly to the charity from an IRA. This makes the IRA withdrawal tax-free, and it satisfies the "required minimum distribution" rule, or RMD, that forces investors with traditional IRAs to start taking money out after 70.5 and to pay tax on the withdrawal. 

"I am finding that clients today are taking advantage of making charitable gifts from their IRA accounts," says Paul Ruedi, CEO of Ruedi Wealth Management in Champaign, Illinois. "I think this is so due to the very strong returns in their accounts – at all-time highs. That means larger RMDs and just more money to give away."

Qualified charitable distributions have been allowed for years, but until a year ago the tax benefit required an annual renewal by Congress. It was often not done until the last minute, making planning difficult. But last December, Congress and President Barack Obama made the rule permanent, so qualified charitable distributions can now be worked into the investor's long-term plan.

Obviously, a qualified charitable distribution is worthwhile only for those aged 70.5 and older whose retirement accounts have more than they need for living expenses, and experts advise keeping a healthy reserve in case your long-term plan doesn't work out.

The rules require that a qualified charitable distribution go directly from the account to the charity, and the fund company, bank or brokerage that has your IRA can walk you through the process. Some even provide checkbooks to make your donations easy. You can give up to $100,000 a year. Alert the charity that the donation is coming, so you get the proper verification. 

"To qualify, you must be 70-and-a-half or older on the date the donation is made, and you must transfer funds directly from your IRA to the charity," says Lauren Klein, a planner in Newport Beach, California, adding that, "it's important that the transfer is completed before you receive any other RMD distribution, to be sure your donation qualifies toward your annual RMD."

"Credit card statements, canceled checks or written acknowledgements from charity groups usually suffice as proof of donation," adds Kay McFarlin, president at TIAA Charitable, a manager of donor-advised funds in Indianapolis. "Donations of $250 or more require an acknowledgement from the charity."

Click here to read the full article in US News & World Report.


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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >