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IRA Rollover

Please note, individual financial circumstances will vary. The information on this site is meant as general information and does not represent legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only.

IRA Rollover and Qualified Charitable Distributions and Contributions to Split-Interest Gifts

The RMDs must begin once the account holder is age 72 (73 if you reach 72 after December 31, 2022 and 73 prior to January 1. 2033 and 75 if you turn 74 after December 31. 2032).

General Information

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Taxpayers as above are required to make annual distributions from their IRAs, regardless of whether he or she is retired, which are then included in the taxpayers’ adjusted gross income (AGI) and subject to taxes. The IRA Charitable Rollover permits those taxpayers, age 70 ½ or older to make donations (Qualified Charitable Contributions or QCDs) directly to public charities from their traditional IRA or Roth IRA (see below regarding Roth IRAs) without counting them as part of their AGI and, consequently, without paying taxes on them. An IRA charitable rollover may fulfill part or all of your required minimum distribution (RMD). Since the charitable rollover is made directly to a charity without the taxpayer counting it as income, there is no charitable tax deduction as a result of the gift.

Contribution to Split-Income Gifts

  • Can be made to a charitable gift annuity (CGA), a charitable remainder annuity trust, or a charitable remainder unitrust. The $50,000 limitation may make funding a charitable trust impractical.
  • Can be made in one tax year only.
  • The aggregate limit is $50,000 which counts toward the $100,000 QCD limit.

When funding a charitable gift annuity (CGA)

  • All CGA payments will be fully taxable as ordinary income.
  • There is no charitable deduction.
  • Annuity payments must be at least 5% of the QCD amount.
  • Annuity payment must begin within one year of the date of the gift.
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Tax Wise Strategy

With the new higher standard deductions, Many Americans required to take IRA distributions are no longer itemizing on their taxes and thus do not benefit from the tax deductability of charitable contributions. QCDs may enable donors who will not be itemizing to benefit tax wise from charitable contributions. By making all or part of charitable contributions directly from their IRA, taxpayers avoid adding to their taxable income as they would if they took the distributions directly.

Roth IRAs

Roth IRAs are technically eligible for Qualified Charitable Contributions (QCD) but as a practical matter it may not be prudent. Generally, the money in a Roth IRA is after-tax money and since the distribution is likely to be tax-free, there is probably no benefit to the taxpayer. Also, after-tax money cannot be used to reduce a taxpayers required minimum distributions.

Inherited IRAs

Inherited IRAs may be held by someone under 72 who inherited it from a parent and according to the IRS rules may have to take RMD’s. This situation is also an option for gifting should the inherited IRA holder wish to make charitable contributions, especially given the new higher standard deductions.

Amount Limitation

Combined charitable IRA rollover contributions for a donor cannot exceed $100,000 in any one single tax year. Contributions may be less than the donors RMD, equal to it, or may exceed it subject to the $100,000 maximum. If less than the RMD, the difference will be required to be distributed to the taxpayer as taxable income.

Eligible Charities

Charitable contributions from an IRA must be sent directly by the IRA trustee to a public charity that is not a supporting organization . Defining it as a public charity excludes charitable gift annuities and charitable remainder trusts (one-time exception shown above).

Charity Receipt

Inform your charity or charities of any planned distribution from your IRA to insure you receive a proper receipt for tax purposes.

Eligible Retirement Accounts

Qualified Charitable Contributions can only be made from traditional IRAs or Roth IRAs. Charitable donations from 403(b) plans, 401(k) plans, pension plans, and other retirement plans are not eligible for the tax-free treatment. A donor might consider rolling monies from an excluded plan into an IRA to enable charitable contributions from those monies.

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Directly to the Charity by the Trustee

Distributions must be made directly from the IRA by the trustee and be payable to the public charity. Donors are specifically not permitted to make charitable rollovers to donor-advised funds, supporting organizations, and private foundations.

No Gifts in Return

In order to qualify for tax-free treatment as charitable IRA rollover, donors cannot receive any goods or services in return.

Written Receipt

Donors must obtain written substantiation of each IRA rollover contribution from each recipient charity in order to benefit from the tax-free treatment.

Personal Advice

As with all estate and tax questions, please review your individual circumstances with your advisor before taking any action.