Tax-free transfers are limited to those over age 70½ mainly to contain
the drain on the federal budget.
One thing you should never forget about your IRA – even though you make contributions with pre-tax
dollars, and once inside these accounts your money grows tax-free, the
government is counting on getting their share of tax revenue from you at some
point. Which is why only those over age 70-1/2 are eligible to make tax-free
transfers (of no more than $100,000) from IRA funds directly to charity. By
limiting eligibility and capping the transfer amount, the government limits
their exposure to lost revenue.
So, why might you want to utilize this IRA-to-Charity strategy? A Charitable
IRA Rollover lets you give to your favorite charity while avoiding taxes on
IRA distributions. Consequently, this is a very popular win-win strategy for
taxpayers who have accumulated a lot of money in their IRAs, but don’t need the
money to live one – and would rather be “voluntary philanthropists” as opposed
to “involuntary philanthropists.”
A recent Kiplinger article titled “Who Can Transfer IRA Funds to Charity?”
explains the ins and outs of Charitable IRA Rollovers. If you think this strategy would be appropriate for you, beware. There are strict rules governing the proper execution of these
transfers, as well as their ultimate tax-treatment.
While Congress generally approves the use of this strategy on a year-by-year basis, the good news is
that they already approved it for this year. This means you should have plenty
of time to plan if you’d like to make a charitable transfer this year.
Reference: Kiplinger (April 30, 2013) “Who Can Transfer IRA Funds to Charity?”