First enacted in 2006, the charitable IRA rollover is a way to let certain taxpayers reduce their tax liability. Individuals who own an IRA must begin taking minimum distributions at age 70½, and those distributions could increase the tax bill at a time when there may not be much income. While the tax bill will always be less than the distribution, the fact that it is required to take these distributions puts any individual in less control of their financial situation than they might want to be.
The charitable IRA rollover is a way to donate a portion of your distribution to a charity and avoid the tax liability. The amount the account holders wishes to provide to a charitable organization and transfered directly from the IRA, with no stop in a personal investment or bank account. There are some limitations, however. The maximum value of the rollover cannot exceed $100,000 each year. Donor-advised charitable funds like the Fidelity Charitable Gift Fund and most private foundations do not qualify. The transfer qualified as part of the required minimum distribution.
This benefit was scheduled to end in 2009, but last-minute tax law changes extended the charitable IRA rollover into 2010 and 2011. Since this change was late, IRA holders have until an extended deadline, January 31, 2011, to establish a tax-free transfer to a charity to have their contribution be tax-free for 2010.
I am not a certified tax professional. Always check with your tax accountant before making any changes.
Published or updated January 17, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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{ 3 comments… read them below or add one }
Wow! This is really interesting. Thanks for sharing this information.
The extension may encourage some people to use this as a way to reduce their tax liability for 2010. This would be a good way to offset the Roth IRA conversions.
Sounds like a win-win to me for both the tax payer & the organization. Why would they cancel it anyway?