An individual age 70½ or older with an Individual Retirement Account (IRA) may contribute up to $100,000 total annual from that account to a qualified nonprofit ministry, like A3.
Why might this be beneficial to the individual?
- Starting at 70½, individuals must begin taking distributions from their IRA’s, which could put them in a significantly higher tax bracket. A Charitable Contribution reduces the required distribution by the amount of the gift, avoiding higher income and possibly higher taxes.
- If an individual takes the distribution as taxable income and then donates the same amount to a ministry, the amount they can deduct from taxes will be limited to 60% of adjusted gross income (AGI), which is now higher because of the IRA distribution, potentially causing a high tax bill. Even though the remaining gift deduction can be carried over to future years, the deduction will likely not be as valuable.
- If an individual takes the distribution as taxable income, the increased (AGI) will also increase the amount of medical and miscellaneous expenses that cannot be deducted from taxes because of the percentage of AGI floor on these types of expenses.
What are the requirements for making an IRA Charitable Contribution?
- The IRA owner must be 70½ or older.
- The contribution must be made from a traditional IRA or Roth IRA (though it probably won’t be beneficial to contribute from the latter).
- The contribution must be made directly from the IRA to the ministry. It cannot be distributed to the IRA owner first.
- The contribution must be made to a qualified charity. Most nonprofit ministries qualify. But contributions cannot be made to private foundations, donor-advised funds, or supporting organizations. A3 qualifies.
- Both husband and wife can donate up to $100,000 from each of their IRA’s each year or a total maximum of $200,000.
Keep in mind that since you are not receiving the distribution as income, this contribution from your IRA is not a tax-deductible gift.
To learn more, check with your tax adviser. This educational illustration is not professional tax or legal advice.
To learn more, check with your tax adviser. This educational illustration is not professional tax or legal advice.
More Information
- CARES Act of 2021
- Giving Appreciated Securities
- Best ways to give you may not have considered
- Options for how to give to A3
