This year may be the last chance for taxpayers age 70 1/2 or older to take advantage making charitable contributions from their IRA. For 2011, a taxpayer over the age of 70 1/2 can transfer up to $100,000 from their IRA to a qualified charity. The amount transfered is not included in the taxpayers gross income and are not subject to the charitable contribution percentage limits.
Even though a direct distribution from an IRA to a charity is not included in the taxpayer’s gross income, it is taken into account in determining the owner’s required minimum distribution (RMD) for the year. That means that if the amount distributed directly from the IRA to an eligible charity during 2011 at least equals the amount of the owner’s RMD for the tax year, they will not be required to take any other distribution from the IRA for that tax year. This type of distribution will will most likely also reduce next years RMD amounts.
This tax break is set to expire at the end on 2011. It has been extended several times, but given today’s budget-deficit-sensitive Congress, we are not anticipating this tax break to be extended.
If you have any questions regarding making a distribution from your IRA to a qualified charity, please do not hesitate to contact us.