If you own an individual retirement account (IRA) and have reached the age of 70½, you are required by law to withdraw some money from the IRA every year and include that amount in your taxable income. Those are your “minimum required distributions”, or MRDs. (This assumes the IRA is not a Roth IRA.)
If your financial situation is such that you don’t need the IRA to fund your expenses, you may prefer not to have to withdraw your MRDs and trigger an income tax on the amount withdrawn. Can the tax be avoided by giving to a charity such as the Opera the amount withdrawn from the IRA? No, under the Internal Revenue Code, the charitable deduction does not fully offset the inclusion of the payment in your gross income. Some taxes and other charges are based on “gross income” (before deductions). Thus, the only way to avoid extra tax is to exclude the MRD from your gross income.
And now there is a way to completely exclude that MRD from your gross income! You can direct that the MRD be paid directly from the IRA to a charity such as the Opera. You can pay in that way as much as $100,000, even if your MRD is less (but you must be 70½ or over). And the amount never shows up on your tax return, either as taxable income or as a deduction. This tax break was offered on a temporary basis in past years, but is now permanent. And it’s not all or nothing: you can transfer part of your MRD to one or more charities, and take the rest into your income.
If you have not yet taken the MRD for this calendar year from an IRA, you can arrange to make a direct transfer of some or all of it to the Opera, by calling your IRA custodian and by contacting the Opera’s Director of Development, Bart Folse, at 504-267-9532 or firstname.lastname@example.org.
If you wish to use this concept next year, the amount of the MRD to be paid from an IRA will be based on the value of the IRA for the current year. Your IRA sponsor can advise you of the MRD amount early in the new year.
This is one of a series of planning ideas. These short memos are designed to encourage you to find out more. They are not intended as legal or tax advice. For that advice you should consult your own lawyer and/or accountant.