Tax-free Charitable IRA Distributions and Donations

It is possible for a taxpayer to make a tax-free IRA distribution to a charity to avoid paying certain taxes. Individuals age 701/2 and older on the date of the transfer can distribute otherwise taxable traditional and Roth IRA amounts directly to certain tax-exempt charities to save on their taxes. These tax-free charitable IRA donations will be considered qualified charitable distributions and the result is that they are federal income tax-free to the donor.

 

Making a Charitable Deduction

However, no charitable deduction is allowed on Form 1040. Qualifying distributions may be made only in amounts of up to $100,000 per year. Qualified charitable distributions to an IRA are payments of otherwise taxable amounts by an IRA trustee directly to a qualified public charity  The rule cannot be used for distributions from SEP accounts, SIMPLE accounts, or qualified retirement plan accounts.

Tax-free Charitable IRA Distributions and Donations

The end effect is that the tax-free treatment for a qualified charitable distribution ends ups giving the taxpayer an immediate 100% above-the-line deduction without any effect on the 50%-of-AGI limitation on cash contributions to 50% charities for these distributions. Also, the fact that qualified charitable distributions are not included in the donor’s AGI lowers the odds that he or she will be affected by various other unfavorable AGI-based tax provisions.

For more information, see the IRS Information on Charitable Donations from IRAs for 2012 and 2013

 

Additional Resources on Tax Free IRA Distributions to Charity: