The permanent state of “the $100,000 charitable IRA contribution” allows taxpayers to take full advantage of the numerous tax benefits of these contributions. We urge all donors to seek professional counsel from their personal legal and financial advisors prior to making any kind of planned gift, including an IRA Charitable Gift via your Required Minimum Distribution (RMD). Please feel free to contact us at email@example.com for more information. The following information is taken from an article by David K. Smucker, CPA on The Tax Adviser.
The Legislative Background
Sec. 408(d)(8) permits “qualifying charitable distributions” from traditional IRA or Roth IRA accounts to be excluded from gross income. The provision first appeared in the Pension Protection Act, P.L. 109-280, in August 2006, as a temporary measure, and was made permanent in the Protecting Americans From Tax Hikes (PATH) Act of 2015, P.L. 114-113.
Definition of a “Qualifying Charitable Distribution”
To qualify, charitable distributions must be:
- From a traditional IRA or a Roth IRA
- Direct from the IRA trustee to a charitable organization – with no intervening possession or ownership by the IRA owner
- On or after the IRA owner has reached age 70 1/2
- A contribution to an organization that would qualify as a charitable organization under Sec. 170(b)(1)(a), other than a private foundation or donor advised fund.
Tax Benefits of Charitable IRA Distributions
- Avoiding the percentage limitation on charitable contributions – By excluding the $100,000 from gross income, in effect the donor gets a $100,000 charitable contribution deduction; since the $100,000 isn’t included in income, it is, effectively, deducted.
- Itemized deduction and personal exemption phase outs – Because the charitable IRA deduction isn’t included in gross income, it will not be included in Adjusted Gross Income (AGI). Since it is not included in AGI, it avoids artificially inflating AGI and possibly triggering phaseouts under Sec. 68 and Sec. 151.
- Use the standard deduction – Because the charitable rollover completely avoids the donor’s tax return, you can effectively get both the standard deduction and the charitable contribution deduction.
- Effect of Adjusted Gross Income (AGI) – by not being included in the AGI, the charitable rollover does not increase the floor and thereby does not reduce the amounts otherwise deductible.
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Increasing the Benefit with Life Insurance
The Seminary and you are able to cooperate to substantially increase the benefit of the distribution by using life insurance. This is accomplished by having the Seminary use the distribution to purchase a single premium life insurance policy on your life. This will increase the amount the Seminary will ultimately receive as a result of the distribution.