It’s tax season – that crazy time of year when everyone is scrambling to pull together receipts, statements and other documents needed to complete those wearisome tax returns.

Have you considered how your IRA affects your overall taxes?

Once you reach the age of 70½, you are required by law to make annual IRA withdrawals called a required minimum distribution. The IRA withdrawal becomes taxable income added to your gross income, which results in a higher adjusted gross income. This could potentially affect the tax bracket into which you fall. Since the penalty for not withdrawing the money is a hefty 50%, leaving the money in your IRA account is not an option.

The good news is that the tax benefit known as a Charitable IRA Rollover (or Qualified Charitable Distribution, “QCD”) was permanently passed into law last year. If you are 70½ years of age or older, this benefit allows you to give up to $100,000 from an IRA to a charity like Liberty Lutheran, with the donation counting towards your required minimum distribution.

Why is that important?

The amount of the Charitable IRA Rollover donation is not added to your gross income, and thus does not result in a higher adjusted gross income.

IRA Inof graphic

To take advantage of this special tax benefit, call your IRA plan administrator and ask to make a direct transfer for the amount you want to donate to Liberty Lutheran. This time next year, you may be glad that you did.

A Charitable IRA Rollover is an excellent tool to employ if you do not need the income now. However, if you use your annual IRA withdrawals for living expenses, then this option may not be suitable for you. If this is the case, please consider supporting Liberty Lutheran by naming us as a primary or contingent beneficiary of your IRA on a Beneficiary Designation Form available from the IRA’s plan administrator.

To assess whether a donation from your IRA distribution is a viable option for you, we recommend that you contact your accountant or tax advisor for further exploration.

Things to Remember:

  • In order to qualify for the charitable IRA rollover, funds must be passed from your IRA directly to Liberty Lutheran.
  • The charitable IRA rollover only applies to gifts from a traditional or Roth IRA and not from any other type of retirement plan (e.g. 401(k), 403(b), SEP, etc.). In some cases, you may transfer assets from another type of retirement account into an IRA in order to be able to make a tax-free IRA rollover to a charity.
  • This provision is only allowed for outright gifts to a qualified public charity like Liberty Lutheran for which you receive no benefits. It is not allowed for transfers to a charitable remainder trust, lead trust, gift annuity, pooled income fund, donor advised fund, supporting organization, family foundation, etc.

The information contained in this document is not intended as tax or legal advice. Figures cited in examples are based on current rates at the time of printing. References to taxes include federal taxes only.

For more information, contact Patty Cline at 267-464-7720 or by email at [email protected].

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