Dear Garden State Trust:
I’ve heard of something called a “charitable IRA rollover.” What is that?
—Generous But Prudent
Those who are older than 70½ are permitted to arrange for a tax-free transfer of up to $100,000 per year from their IRA to the charity of their choice. This is the technique you are referring to, although strictly speaking it isn’t a “rollover.”
The other thing that those of that age must do is take required minimum distributions (RMDs) each year from their IRAs. These two things can go together. A direct transfer to a charity from an IRA counts toward the RMD for that year. Some retirees simply direct their IRA custodian to send the RMD to a charity, without worrying too much about the amount.
There’s no tax deduction when one does this, because there is also no inclusion of the distribution in taxable income, which would be the usual case with an RMD. Avoiding income inclusion is more valuable than getting a tax deduction. For example, it may avoid additional income taxes on Social Security benefits that otherwise could be triggered by an RMD.
This year many fewer taxpayers will be itemizing, thanks to the doubled standard deduction. For these taxpayers, arranging for a transfer to charity from an IRA will have better tax results than simply making a gift of cash in the same amount.
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