Dear Trust Officer: I’ve heard of something called a “charitable IRA rollover.” What is that?
— Generous, but Prudent
DEAR GENEROUS, BUT PRUDENT:
If you are older than 70½, you are permitted to arrange for a tax-free transfer of up to $100,000 per year from your IRA to the charity of your choice. This is the technique you are referring to, although strictly speaking, it isn’t a “rollover.”
The other thing that you must do, if you are of that age, is take required minimum distributions (RMDs) from your IRAs each year. A direct transfer to a charity from an IRA counts toward your RMD for that year. Some retirees simply direct their IRA custodian to send their RMD to a charity, without worrying about the amount. The RMD and the charitable IRA rollover can go together.
There is no tax deduction when you give your RMD to charity, since there is also no inclusion of the distribution in taxable income, which would be the usual case with an RMD. However, avoiding income inclusion is more valuable than getting a tax deduction. For example, it may avoid additional income taxes on Social Security benefits that otherwise could be triggered by an RMD.
This year many fewer taxpayers will be itemizing, thanks to the doubled standard deduction. For these taxpayers, arranging for a transfer to charity from an IRA will have better tax results than simply making a gift of cash in the same amount.
Do you have a question concerning retirement planning, wealth management, or charitable giving? firstname.lastname@example.org.