On January 2 2013 President Obama signed the American Taxpayer Relief Act of 2012 also known as the Fiscal Cliff Bill into law. While tax rates grabbed all the headlines the bill also included some good news for charities – and for philanthropically inclined Individual Retirement Plan (IRA) owners.
You might remember the Qualified Charitable Distribution (QCD) provision. Well this tax-free distribution of otherwise taxable dollars from your IRA to a qualified charitable organization is back! As established in 2011 individuals ages 70½ and older can give direct gifts up to $100000 to qualified public charities from their Individual Retirement Accounts (IRAs) — without paying taxes on the distribution.
In fact the newly-dubbed “IRA Rollover provision” allows IRA gifts made between December 31 2012 and February 1 2013 to be counted for the 2012 tax year. It also permits people who made qualifying transfers from their IRAs to charities in December of 2012 to treat the transfers retroactively as eligible rollovers. Finally it extends the IRA charitable rollover provision through December 31 2013 when it will sunset.
And yes these gifts will count toward your Required Minimum Distribution (RMD).
Who benefits the most? Charities benefit of course but this strategy can make sense for both donors who itemize deductions and whose charitable contributions would be reduced by the percentage of income limitation or by the itemized deduction reduction. This is beneficial since the QCD is not included in the taxpayer’s Adjusted Gross Income.