The Extension Of The 2010 IRA Charitable Distributions

With so many provisions in the The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, not much has been said about the extension of the IRA charitable rollover. This rule has been extended through Dec. 31, 2011, and in an unusual twist, charitable distributions for the 2010 tax year can be made through the end of January 2011.

Starting in 2006, it has been possible for taxpayers 70 1/2 and older to contribute their annual required minimum distribution (RMD) directly to a charity.  This law allows them to make the required distribution without counting it as part of their income, thereby lowering their tax bill.

Until the change in the tax code made last month, this provision, available only for IRA (i.e. not 401(k) or other retirement fund) distributions, had not been extended beyond the 2009 tax year.  Besides providing the opportunity to make a charitable contribution and reduce taxable income, the provision allows retirees to reduce the size of their IRAs, reducing future RMDs and associated income taxes.

The change makes it possible for a charitable rollover completed by January 31st to be counted as a 2010 distribution.  People who already made their distributions before the new law was passed aren’t permitted to have a “do over” for their RMD, but any money that was distributed in excess of the RMD can be put back into the IRA and then rolled over into a charity.

The new provision does not allow a charitable deduction for the funds distributed to a qualified charity, but the ability to reduce one’s gross income makes up for that.  The rule allows taxpayers to give the maximum that they’re normally allowed to contribute to a charity (no more than 50% of AGI, but in some cases the cap is smaller) and then to contribute up to an additional $100K in the form of a charitable rollover in 2010 and 2011.

Taxpayers interested in taking advantage of this rule should consult their tax advisors before making a distribution.

About the author

Thomas Fisher, CFP®

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