March 18, 2016
If you are 70½ years old or older, you’re generally required to take a minimum distribution from your Individual Retirement Account every year — and that distribution is taxed as income. You might not know that, instead, you can use that minimum distribution to donate up to $100,000 to charity, tax-free, directly from your IRA. As a result, your taxable income decreases effectively by the amount of the donation.
Since 2006, individuals have used the Pension Protection Act for this type of charitable contribution, but the drawback was that they had to wait for the provision to be extended each year. As of Dec. 18, this provision has become permanent law as part of the Protecting Americans from Tax Hikes (PATH) Act.
“People can plan ahead now, rather than waiting until the end of the year,” says Wendy Kelley, National IRA Product Manager for U.S. Bank.
What you need to know
Not every charity qualifies for this type of donation. The charity must be considered “broadly supported.” Educational institutions and hospitals, for example, fall into this category. In general, 501(c)(3) organizations, or tax-exempt nonprofits, will qualify.