Remember the 2007 tax rule that allowed individuals 70½ or older the option of contributing up to $100,000 directly from an IRA to a qualified charity in 2007 without having to treat the IRA distribution as taxable income?

Well, that option was restored by a 2008 law, making such IRA direct contributions allowable for 2008 and 2009.  Here's a review of this potential tax planning opportunity involving your individual retirement account.

Charitable IRA distributions are withdrawals that are neither included in, nor deducted from, your taxable income. Better yet, such payments qualify as required minimum distributions (RMD) from your retirement account. Thus, if you do not need the IRA distribution to live on, and you wish to make a donation, a charitable IRA rollover might be a win-win strategy.

Charitable rollovers also make sense when the inclusion of the IRA distribution in your income would result in the phasing out of other deductions, such as personal exemptions or itemized deductions. Non-itemizers also benefit since the donated amount is excluded from their taxable income.

Keep in mind that there are unique restrictions on this type of gift. The IRA rollover cannot be contributed to a donor advised fund or supporting foundation. Also, if any benefit is received in exchange for the gift, such as dinner tickets, the entire distribution becomes taxable. As with any donation, the charity needs to provide you with a tax receipt containing all the proper substantiation for your contribution. Without it, the gift is disqualified. Also be aware that the donation must be made directly from the IRA to the charity and not paid to you first.

Remember, this provision is scheduled to expire at the end of this year, so now's the time to act. If you're interested in analyzing whether this option is a tax-smart move for you, give us a call.

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