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The Charitable IRA Rollover–Everyone Wins

It is not uncommon for a large portion of your wealth to be concentrated in tax-deferred retirement accounts such as IRAs and 401(k)s. From an estate planning standpoint, planning for these qualified accounts brings its own sets of issues and concerns. Because of their tax-deferred nature, the tax consequences can be significant, and mistakes quite costly.

The special nature of these funds also impacts charitable giving decisions. If you want to make sizable gifts during your lifetime, you may turn to your qualified retirement account(s) for these gifts. In so doing, however, you could meet head-on with negative tax consequences.

The Charitable IRA Rollover may be one solution to explore.

The IRA Charitable Rollover allows people age 70-1/2 or older who are subject to Required Minimum Distributions to donate up to $100,000 from their IRAs without first having to recognize the IRA distributions as ordinary income, or deal with the ceiling the IRS imposes on charitable contributions. If you make a charitable contribution from your IRA, you won’t get the charitable deduction for that amount, but the income avoidance should more than make up for that.

As with all things involving the IRS, there are restrictions. The rollover is available only for traditional and Roth IRAs. If you have a Simple IRR, SEP IRA or an employee-sponsored retirement account, you can’t use this tactic. Also, remember that the rollover must be made to a “qualified charity,” and that the check must go directly from the IRA to the charity. Don’t try routing the check through you.

If you choose to make a Charitable Rollover, you will receive a 1099R from the IRA’s custodian or trustee. However, the IRS has issued a new procedure to address it on the 1040 form.

You can learn more about tax-savvy giving strategies in the Tax Planning Strategies and Estate Tax Planning: Problems and Solution pages on our website.