Money from an individual retirement account can be donated to charity. What’s more, if you've reached the age where you need to make required minimum distributions (RMDs) from your traditional IRAs, you can avoid paying taxes on them by donating that money to charity.
Normally, a distribution from a traditional IRA incurs taxes since the account holder didn’t pay taxes on the money when they put it into the IRA. But account holders 70-1/2 or older who make a contribution directly from a traditional IRA to a qualified charity can donate up to $100,000 without it being considered a taxable distribution. The deduction effectively lowers the donor's adjusted gross income (AGI).
To avoid paying taxes on the donation, the donor must follow the IRS rules for qualified charitable distributions (QCDs)—aka, charitable IRA rollovers. Most churches, nonprofit charities, educational organizations, nonprofit hospitals, and medical research organizations are qualified 501(c)3 organizations. The charity will also not pay taxes on the donation.
This tax break does mean that the donor cannot also claim the donation as a deduction on Schedule A of their tax return. Other donations to charity that don't use IRA funds, however, can still be claimed as an itemized deduction. Since the Tax Cuts and Jobs Act increased the base standard deduction, for 2019, to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly, many fewer taxpayers will itemize on Schedule A, making the upfront deduction potentially even more important.
For 2023, the base standard deduction is $13,850 for individuals or married individuals filing separately, $20,800for heads of household, and $27,700 for married couples filing jointly. Taxpayers whose annual income affects their Medicare premiums might also find that this provision helps control the premium cost.
*Securities America and its representatives do not provide tax or legal advice. Tax-law is subject to frequent change; therefore it is important to coordinate with your tax advisor for the latest IRS rulings and specific tax advice, prior to undertaking an investment plan. Any tax or legal information provided here is merely a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation.