Boosting the Tax Benefits of Charitable Giving

By Gary Dunco, CFA, CFP®, CRPC®, APMA®, Private Wealth Advisor, Ameriprise Financial

From a tax standpoint, not all charitable gifts are created equal. A tax-efficient giving strategy can help you maximize the impact of your donations to your favorite charities and take advantage of tax savings.

If you are age 70½ or older, you may have an opportunity to make donations to a qualified charity directly from traditional and Roth IRA distributions. In addition to creating tax advantages, these donations also can satisfy any IRA-required minimum distributions for the year.

How an IRA charitable distribution works

Provisions that allow charitable donations from these plans have commonly been approved as part of the tax law on a year-to-year basis. These laws are often passed at the end of the year. It’s important to note that Congress is still working on approving these provisions for 2015.

Historically, qualified charitable distributions from IRAs allow donations of up to $100,000 per person. Married individuals filing a joint return can make gifts up to $100,000 donated from each spouse’s own IRA ($200,000 total). Taxpayers can also give to multiple charities, provided that the total charitable distributions from an individual’s IRA do not exceed the $100,000 per person limit.

The benefits of an IRA charitable distribution

With an IRA charitable rollover, money moves directly from the individual’s IRA to the qualified charity. This is an important distinction from a direct gift of cash. Some of the benefits include:
• The transfer to the charity directly from your IRA qualifies as your “required minimum distribution” from your IRA for this tax year, if you are distributing from a traditional IRA or an inherited IRA.
• You aren’t required to report the withdrawal from your IRA as taxable income, which potentially reduces your tax burden. Maintaining a lower level of taxable income is particularly important for people in the top tax brackets, who may risk being subject to higher tax rates that apply above certain income thresholds.
• If you don’t itemize deductions, you still enjoy the tax benefits of a charitable contribution by not having to claim the income that was distributed directly from the IRA to the charity.

Start planning now – contact your financial and tax advisors

There is no guarantee that Congress will approve provisions for IRA qualified charitable contributions again. If history is any guide, though, approval to extend the provision for at least 2015 could come before the end of the year.

However, you can consider making an IRA gift directly to a charity before Congress works out the final details. Instruct your IRA custodian to transfer money directly from your IRA to a charity or charities following the previous rules. If Congress fails to extend the IRA qualified charitable contribution provision, you can still claim the distribution as income and also claim the gift to the charity as a charitable deduction, assuming you itemize deductions.

Now would be a great time to contact your financial advisor to discuss the implications that an IRA charitable distribution can have on your overall financial picture. Also, be sure to check with your tax advisor before you make any decisions about charitable donations from IRAs, and to how to properly report them.

Saukville resident Gary Dunco, CFA, CFP®, CRPC®, APMA®, is a Private Wealth Advisor and Certified Financial Planner™ practitioner with Ameriprise Financial Services, Inc. in Brookfield, Wis. He specializes in fee-based financial planning and asset management strategies and has been in practice for 32 years. To contact him, please call (262) 785-1010, visit his office at 16650 W. Bluemound Road, Suite 800, or go to http://www.ameripriseadvisors.com/gary.b.dunco.

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