Listen up Charitably Inclined Elders (over age 71)

As we all go through the provisions of the American Taxpayer Relief Act of 2012 (the Fiscal Cliff legislation), one beneficial provision was the extension of the IRA charitable rollover provisions through December 31, 2013.   Congress has also allowed any transfers made BEFORE January 31, 2013 to count towards 2012!  So the clock is ticking.

The IRA Charitable Rollover, which was first enacted in 2006, is now extended through 2013. The provision allows individuals, aged 70½ and older, to donate up to $100,000 from their Individual Retirement Accounts (IRAs) to public charities without having to count the distributions as taxable income.

Pole with wooden signs with the words peace, happy, smile

So how can taking advantage of the Charitable Rollover provisions for BOTH 2012 AND 2013 help you?

  • Individuals can make an IRA Charitable Rollover (up to $100,000) to a designated fund at AEF (not a Donor Advised Fund) in January 2013 for taxable year 2012 and not have that transfer count towards 2012 taxable income.
  • Individuals who took distributions from their IRA, including a required minimum distribution (RMD) in December 2012, can contribute that money (up to $100,000) to a designated fund by January 31, 2013 and not have that transfer count towards 2012 taxable income.
  • Distributions under this election made before January 31, 2013 will be treated as made on December 31, 2012.
  • Charitable Rollover amounts count toward an individual’s required minimum distribution.

Who Could Benefit From a Charitable Rollover?

  • Shortly after individuals reach the age of 70 ½, they are generally required to take minimum distributions from their traditional IRA (RMD). Amounts taken through the Charitable Rollover provisions count towards Required Minimum Distributions, thus reducing taxable income.
  • If charitable deductions are not itemized – IRA rollovers especially benefit the nearly two-thirds of Americans who do not itemize deductions and therefore do not receive a tax benefit for their charitable contributions.
  • If Social Security income is taxable – By avoiding the recognition of taxable income, the donor may have less of their Social Security income subject to income tax.
  • Residents of Ohio, Indiana, Michigan, New Jersey, Massachusetts or West Virginia – These states provide no income tax break for charitable contributions. Consequently, these state resident will save taxes by giving from their IRA instead of from their checking account.
  • Future Estate Tax implications – The combination of estate and income taxes on IRA assets can produce an effective tax rate of up to 80%. The Charitable IRA rollover exclusion gives individuals the opportunity to remove up to $100,000 of these assets from their estate with no tax consequences. Spouses can rollover up to $100,000 as well, if qualified.

What Are The Rules?

• Individuals must be 70½ years old or older.
• The rollover for 2013 must be completed by December 31, 2013 (January 31 if they want it to count towards 2012) .
• Rollovers can only be made from traditional IRAs.   Rollovers from 403(b) plans, 401(k) plans, pension plans, and other retirement plans do not qualify.
• Rollover cannot exceed $100,000. Amounts more than $100,000 will be added to taxable income.

Can donors make a qualified charitable rollover to a donor advised fund (DAF)?

No.  For while we have sung the praises of donor advised funds in a previous post, the IRS has excluded Donor Advised Funds from the Charitable IRA Rollover provisions. However, a donor can make distributions from the IRA in the traditional way, recognize the distribution as income, contribute those dollars to a Donor Advised Fund and calculate the charitable deduction in the normal way. The charitable deduction tends to offset the increase in taxes resulting from the traditional distribution, subject to annual Adjusted Gross Income (AGI) limits.

However. you can create a Designated Fund with a sponsor as American Endowment Foundation (AEF). In the designated funds, you would, as the donor, specify the charity or charities up front. These cannot be changed (as is the case in donor advised funds). Then, AEF will distribute grant dollars to the specified charity or charities based on a spending policy, i.e. 5% of beginning of the year’s balance.  You would tell us when the grant process will start.

Call us if you would like our assistance in taking advantage of this tax provision.


The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

About Dan Crimmins

Dan Crimmins, co-founder of Crimmins Wealth Management, is a financial coach and fee only financial planner. Have a financial question? ASK DAN


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