IRA distribution to charity
From Wikicpa
The Pension Protection Act of 2006 contains a favorable provision to allow Individual retirement accounts (IRA's), the ability to directly donate up to $100,000 per year to an eligible charity without first being taxed on the distributions.
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Under IRC Sec. 408(d)(8), up to $100,000 of qualified distributions per year can be withdrawn tax-free from an indiviudals IRA.
Qualified distributions must:
- be from an IRA. SEPs or SIMPLE IRAs are not allowed,
- be a withdrawal that would otherwise be taxable,
- occur after the individual turns age 70 1/2,
- be made directly to a qualified charity,
- be a donation that would otherwise be a deductible contribution.
Example #1:
Fred directs the trustee of his traditional IRA to make a $50,000 distribution directly to his church. Fred is 72 years old as of December 31, 2006. Consequently, Fred's distribution is not included in his gross income and the distribution counts towards his required minimum distribution (RMD)
If a taxpayer has basis in their IRA, the contributions are considered to come from the nonbasis assets first. These are the amounts that were deductible when contributed and would have otherwise been taxable upon distribution.
Example #2:
Jane, age 75, has a traditional IRA with $95,000 balance. Her IRA has $15,000 of nondeductible contributions and $80,000 of deductible contributions. Jane instructs her IRA trustee to make an $80,000 distribution to her church.
Since contributions are deducted first from taxable distributions, Jane will not include any of the $80,000 distribution in her gross income. The contribution does not reduce her contribution limit and she retains her $15,000 nontaxable basis in the IRA.
Considerations
Unless extended by Congress, this provision is set to expire at the end of 2007.
