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Last Call for IRA Charitable Contributions?
By Jeffrey J. Pritchard, CFP - Director of Development for The Greater Tacoma Community Foundation
As part of the Emergency Economic Stabilization Act of 2008, Congress extended the opportunity for Individual Retirement Account (IRA) holders, aged 70 or older, to directly transfer up to $100,000 tax-free to charitable organizations through year end 2009. This had been viewed as a productive method to utilize an IRA's Required Minimum Distribution for older IRA owners who didn't need all the income they were required to withdraw. However, that opportunity is set to expire on December 31st of this year and Congressional watchers believe the current deficit environment does not bode well for the charitable exemption being renewed in 2010. As a result, the next two months may be the last in which qualifying individuals, or couples, can donate directly from their IRAs without facing income tax on the said "distribution." The information below summarizes the program, but as with any retirement plan issue, individuals should consult with their tax, legal or financial planning advisor for additional guidance on this issue.
How does the IRA Contribution Work? Taxpayers age 70 and older are required to make annual distributions from their IRAs. The distributions are included in the taxpayers’ adjusted gross income (AGI), and taxpayers pay taxes on them. The IRA Charitable Contribution permits taxpayers to make donations directly to charitable organizations from their IRAs without counting them as part of their income and, consequently, without paying taxes on them.
Deadline. Only contributions made by December 31, 2009, are eligible for the enhanced tax benefit.
Age Limit. Donors must be 70 years old or older when the distribution is made.
Maximum Donation. A donor’s total combined charitable IRA contributions cannot exceed $100,000.
Eligible Charities. Charitable contributions from an IRA must go directly to a public charity. Contributions to supporting organizations, donor-advised funds, and private foundations generally will not qualify for the tax-free treatment.
Eligible Retirement Accounts. Distributions can only be made from traditional Individual Retirement Accounts or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not eligible for the tax-free treatment.
Directly to the Charity. Distributions must be made directly from the IRA trustee payable to the public charity.
Written Receipt. In order to benefit from the tax-free treatment, donors must obtain written substantiation of each IRA rollover contribution from each recipient charity.
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