What is my tax deduction if I donate my IRA account to a public charity?

Question

thanks

Answer 1

The answer is different depending on whether you are age 70.5 or older.

For 2006 and 2007, persons who are age 70.5 or older, and therefore required to take a minimum distribution from their IRAs, may donate up to $100,000 directly to a charity and it will not be counted as income. The donation can be used to satisfy the required minimum distribution, and there is no limitation on the donation in relation to adjusted gross income, except for the $100K per year limit.

The donation is considered first to come out of the taxable part of the distribution. In the case of a qualified Roth distribution, there is no income tax benefit, nor RMD benefit. This is because Roth's do not have a RMD nor are qualified distributions taxable.

So, if you are age 70.5 or older and make a direct contribution of not more than $100,000, you take no deduction and do not declare the distribution as income.

If a person is under 70.5 and donates the IRA to charity, it is considered a normal charitable contribution and has to be itemized on Schedule A. It is also subject to the 50% of AGI rule. This means that if the donation exceeds 50% of adjusted gross income, the excess cannot be deducted in the year of the donation but must be carried forward and deducted in the future. The distribution from the IRA is subject to the usual income tax and penalties.

So, if you are under 70.5, you do take the deduction (subject to the 50% rule), and you do declare the distribution as income.

Answer 2

I would imagine that you would have a penalty for early withdrawal and a tax on income if it was a traditional IRA. If it was a Roth, you would have an early withdrawal penalty but no tax penalty. If you are over 59 1/2, I think you would have just taxes on the IRA if it were Traditional, no taxes on the Roth.

Now since it is charity, I think you would deduct your charity from your earnings including IRA distribution to come to a new tax bracket. If you are older than 59 1/2 and it is a Roth, you probably will get a little more refund on your taxes, because you will reduce your tax burden on overall income.

Answer 3

0.00

If you are over 70.5 and it is a traditional IRA, a new rule went in to effect last year that allows you to donate the proceeds from an IRA directly to a charity. You do not get a deduction for this but you also do not have to claim it as income.

----

Oops....got the age wrong in my original post.

Answer 4

Wayne is correct. You don't get a charitable deduction; however, you don't have to include the IRA distribution as income either. Typically, any funds withdrawn from an IRA are fully taxable.