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Mar 24, 2016

Maximizing Charitable Giving for Seniors

Taxpayers have contributed millions of dollars to charity as a result of the limited IRA charitable rollover incentive enacted as part of the Pension Protection Act of 2006.  That incentive, which allowed taxpayers aged 70 1/2 or older to make tax-free distributions of up to $100,000 annually to charitable organizations from their traditional IRA accounts, has now been made permanent.  Wait! Did we just use “tax-free” and “charitable” in the same sentence? Woot! Woot!  We did! So, let’s take a quick look at what that really means. 

Lets say Senior Citizen Sam wants to make a $20,000 donation to the building fund of his church, and he’d like to do it with funds from his traditional IRA.  His income before any IRA withdrawl is $50,000.  If he takes the IRA into income, his adjusted gross income is now $70,000.  He gives the money to the church which lowers his taxable income back to $50,000.  Sam is in the 25% tax bracket, and his tax is $12,500. 

Now, let’s assume Sam learns of the rollover technique from his favorite RPC tax advisor and instructs his IRA custodian to send his contribution directly to the church.  He does not take the distribution into income, and he does not take the deduction on his tax return, but wait for it…..he saves tax!  Since he did not take a deduction for the donation to the church, he gets to use his $6,300 standard deduction which lowers his taxable income by $6,300 and his tax from $12,500 to $10,925.  That’s like a 12.6% savings!  

So now you’ve learned something really groovy, but remember with tax law, there are always restrictions and rules to follow.  That’s why you should come see your favorite RPC tax advisor.

If you’d like to further discuss this article or have other questions regarding charitable giving, please feel free to contact any of our tax professionals at RPC.

Jack Kirkland, CPA
Clovis Office Partner-in-Charge