Looking to Give? Donating Now a Snap for Seniors

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March 18, 2016

If you are 70½ years old or older, you’re generally required to take a minimum distribution from your Individual Retirement Account every year — and that distribution is taxed as income. You might not know that, instead, you can use that minimum distribution to donate up to $100,000 to charity, tax-free, directly from your IRA. As a result, your taxable income decreases effectively by the amount of the donation.


Since 2006, individuals have used the Pension Protection Act for this type of charitable contribution, but the drawback was that they had to wait for the provision to be extended each year. As of Dec. 18, this provision has become permanent law as part of the Protecting Americans from Tax Hikes (PATH) Act.


“People can plan ahead now, rather than waiting until the end of the year,” says Wendy Kelley, National IRA Product Manager for U.S. Bank.

What you need to know


Not every charity qualifies for this type of donation. The charity must be considered “broadly supported.” Educational institutions and hospitals, for example, fall into this category. In general, 501(c)(3) organizations, or tax-exempt nonprofits, will qualify.

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March 18, 2016

On the other hand, ineligible charities include private foundations and donor-advised funds, which allow contributors to recommend how charitable contributions will be spent. Also, you can’t receive anything of monetary value as a result of the donation, says Mike Penfield, National Director of Charitable Services for U.S. Bank. He explains, “I can give to the athletic program, but if they give me better tickets, that won’t count.”


It’s important that your IRA provider transfers the donation from your IRA directly to the charity, Penfield adds. If the money enters your checking account, even for a day, it is counted as taxable income. Additionally, you’ll need to follow up with the charity to get a letter proving that

you didn’t receive anything in return for the donation.


Keep in mind that you’ll need to be at least 70½ years old on the day the donation leaves your IRA.


How to do it


Start by contacting your U.S. Bank relationship manager to talk about your overall philanthropic goals and your plans to make a charitable donation from your IRA. Confirm that you have the right type of IRA for this contribution. You may not want to use a Roth IRA, for example, because it has no minimum required distribution during the owner’s lifetime and because qualified Roth distributions are already tax-free to the recipient.


If you meet the requirements for the contribution, your relationship manager will write a cover letter explaining your donation and send it to the charity, along with a check drafted directly from your IRA.



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March 18, 2016

Next, you’ll need to let your tax provider know about the donation, notes Dave Rau, Trust Tax Manager for U.S. Bank. For example, if you give $50,000 to charity through your IRA, that $50,000 still gets reported as an IRA distribution. The difference is that the donation won’t be counted toward your taxable income.


How you can benefit


Regular charitable donations can be deducted from your taxable income, though certain limitations apply. When you make a donation directly from your IRA, you might receive additional tax benefits. For example, Rau says, if you lower your adjusted gross income through an IRA charitable contribution, you might be able to take a larger deduction for medical expenses or miscellaneous deductions, which are

affected by the amount of your adjusted gross income.


It’s important to consult with your U.S. Bank relationship manager and your tax advisor to structure your charitable contributions in the most appropriate way for your particular situation. “You’ll also want to consider the effect on your state income taxes. The impact of this provision may vary from state to state,” Rau adds.


Another advantage of an IRA charitable contribution is the ability to witness the effects of your donation. “Maybe you already planned to have a piece of your IRA go to your charity at your death,” Kelley says. “This way, you get to see your money working at that organization while you’re living."


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Gifting , Wealth Transfer