IRA Charitable Contributions

Taxpayers 70 1/2 years old and older who own an IRA are required to take minimum distributions from that account each year and include those amounts in taxable income. If you are in this category, a special rule allows you to make a charitable contribution directly from your IRA to a charity.

This has several tax benefits.  First, since charitable contributions deductions are usually only available to individuals who itemize, individuals who take the standard deduction instead can still benefit from this rule.  Second, making the contribution directly to a charity counts towards your required minimum distribution, but that amount is not included in income and thus reduces your taxable income and adjusted gross income.

 

A lower Adjusted Gross Income (AGI) is advantageous because it increases your ability to take medical expense deductions that you might not otherwise be able to take.  For example, medical expenses are only deductible to the extent those expenses exceed 7.5 percent of your AGI and a lower AGI means you can deduct more medical expenses.  In addition, as AGI increases, more of your social security income is subject to tax.  Finally, the 3.8 percent net investment income tax applies to the extent your AGI exceeds a certain level.

For instructions on how to make an IRA charitable contribution, please see below.