Tax questions on IRA withdrawal?

Question

I have money in an IRA I would like to withdraw and give to my church for their building campaign for a one time gift. (Given the history of cancer and heart disease in my family, it's unlikely I'll make it to age 59 1/2 for a regular distribution.) If I read the IRS tax code right, I'll have to claim it as income & then be hit for a 10% penalty, plus whatever tax is due on it for income, right?

So here's the second question. If I do take the IRS money out and have to claim it as income, then can I claim it as a charitable contribution since I'm giving it to the church?

Thanks for any assistance! :)

Answer 1

If you take a withdrawal before age 59.5, you normally will pay a 10% penalty tax in addition to your income tax. This will apply even if you give your IRA to charity.

However, if you give your IRA distribution to charity, you can deduct that in full from your taxable income on Schedule A.

So, at worst you are paying 10% tax and giving your money to the charity of your choice.

Answer 2

A law was recently passed that allows for excluding a distribution to charity from an IRA, but you have to be 70 1/2 to take advantage of it.

Sorry to hears about your poor health prospects. If you really were to pass away soon, there would be no 10% penalty on withdrawals after your death. You could make your church the beneficiary of your IRA and the church would receive 100% of the money income-tax and estate-tax free.

If you make other heirs the beneficiary, they also can withdraw without paying the 10% penalty, although the withdrawals will be subject to income taxes . Don't give away your assets and make your heirs destitute.

Also, consider your own needs. If you withdraw the money for certain purposes such as unreimbursed medical expenses or after you are disabled, the withdrawal can be exempt from the penalty.

If you do withdraw the money and pay the penalty, you would receive a charitable contribution deduction, which would lower your income taxes, provided that you itemize your deductions. You may lose part of the deduction if your income is so high that your itemized deductions are subject to reduction.

Answer 3

Since the money would be out of the IRA and the taxes paid, it's yours to do with whatever you wish. And yes, if you take it out before age 59-1/2, you'd not only pay taxes on it as ordinary income, but also a 10% penalty on the amount withdraw.

Yes, you could take it out, pay the taxes and the penalty, then donate it to the church and take a charitable donation deduction. There are limits on how much you can give per year and take for a charitable donation.

Answer 4

Do not bury yourself before your time. But you are doing something very nice for your church.

Unfortunately you are right regarding the 10% penalty. The only way to get the money out penalty free (at least the only three loopholes that I know of) is if you were going to use the money to buy your first house, to pay medical expenses, or to pay for schooling. Otherwise, yeah you will be hit with penalties. However you are right that you can use the money you are donating as a tax deduction. This will only benefit against the income tax you will pay, you will still have to pay the $1,000, no matter how many deductions you accumulate throughout the year.

Answer 5

If it is "Traditional IRA", you may do "Conversion" from Traditional to ROTH. There is no 10% penalty for "conversion, but you have to pay taxes on the growth on your corrent income rate.

Look for the best year for the "Conversion", means the years you have the "Least Income". So that in the lowest tax bracket you can do "conversion" (regardless of your age, 591/2 does not matter!) and pay less tax.

You only pay Taxes (but not 10% penalty) and then once the mones in Roth IRA, you can withdraw (the contribution) at any time.

Answer 6

Withdrawals form a traditional IRA are fully taxable as ordinary income. If you are under age 59 1/2 there is a 10% penalty tax on top of that.

Once you withdraw the funds, you are free to do whatever you wish with them, including donate them to the charity of your choice.